THE ECONOMICS OF MEDICAID
THE ECONOMICS OF MEDICAID
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THE ECONOMICS OF MEDICAID Assessing the Costs and Consequences EDITED BY JASON J FICHTN ER
THE ECONOMICS OF MEDICAID  Assessing the Costs and Consequences EDITED BY JASON J. FICHTN ER
An earlier version of chapter 3 was published by Jason J Fichtner and John Pulito as Medicaid Overview Mercatus Research Mercatus Center at George Mason University Arlington VA December 11 2013 available online at http mercatus org publication medicaid overview Copyright 2014 by the Mercatus Center at George Mason University Mercatus Center at George Mason University 3434 Washington Boulevard 4th Floor Arlington VA 22201 Library of Congress Cataloging in Publication Data The economics of Medicaid assessing the costs and consequences edited by Jason J Fichtner p cm Includes index ISBN 978 0 9892193 6 5 paperback ISBN 978 0 9892193 7 2 kindle I Fichtner Jason J editor of compilation II Mercatus Center issuing body DNLM 1 United States Patient Protection and Affordable Care Act 2 Medicaid economics 3 Health Care Reform economics United States 4 Health Policy economics United States W 250 AA1 RA412 4 368 4 200973 dc23 2014003886 Printed in USA
An earlier version of chapter 3 was published by Jason J. Fichtner and John Pulito as    Medicaid Overview     Mercatus Re...
CONTENTS Introduction 1 by Jason J Fichtner Part 1 Challenges Facing Medicaid Chapter 1 The Structure of Medicaid 9 by Joseph Antos Chapter 2 Medicaid s Cost Drivers 31 by June O Neill Part 2 Medicaid s Budgetary Impact Chapter 3 The Federal Side of the Budget Equation 49 by Jason J Fichtner Chapter 4 The State Side of the Budget Equation 65 by Nina Owcharenko Part 3 The Affordable Care Act and Medicaid Chapter 5 Medicaid under the Affordable Care Act 83 by Charles P Blahous Chapter 6 A Physician s Perspective 99 by Darcy Nikol Bryan MD
CONTENTS Introduction   .....................................................................................................
Part 4 Medicaid s Health Care Failures and Possible Reforms Chapter 7 Reforming Medicaid 129 by James C Capretta Chapter 8 How to Achieve Sustainable Medicaid Reform 147 by Thomas P Miller Chapter 9 Medicaid and Health 173 by Robert F Graboyes Appendix A Medicaid Timeline 191 Acronyms and Abbreviations 193 About the Contributors 195
Part 4  Medicaid   s Health Care Failures and Possible Reforms Chapter 7  Reforming Medicaid.................................
Medicaid pays the full freight for most healthcare services with few out of pocket costs but compensates by sanding down the rates paid to providers The result is that the Medicaid benefit has been hollowed out over time Fewer doctors are willing to see Medicaid patients making it hard for patients to get appointments and schedule needed services Scott Gottlieb MD practicing physician and resident fellow at the American Enterprise Institute I want poor people in this country to have the kind of quality of care and dignity that members of Congress have Senator Ron Wyden D Oregon Originally created to serve the poorest and sickest among us the Medicaid program has grown dramatically but still doesn t include the kind of flexibility that states need to provide better health care for the poor and disadvantaged Representative Fred Upton R Michigan
   Medicaid pays the full freight for most healthcare services  with few out of pocket costs  but compensates by sanding d...
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INTRODUCTION JASON J FICHTNER M edicaid is now the largest health insurance provider in the United States Unlike Medicare which was created to provide health care coverage to those over the age of 65 Medicaid s intent was the provision of care for financially limited individuals of any age As the chapters in this book will make clear government health care spending is already at unprecedented levels and its costs are expected to increase dramatically The Congressional Budget Office CBO estimates that by 2024 20 million new people will be added to Medicaid and the Children s Health Insurance Program under the Patient Protection and Affordable Care Act ACA an increase of nearly 30 percent Further according to the CBO federal spending on Medicaid is already projected to rapidly increase under the ACA from 265 billion in fiscal year FY 2013 to 574 billion in FY2024 Additionally because Medicaid is actually run by each individual state with major funding assistance from federal cost sharing dollars state costs devoted to Medicaid are also expected to become much more burdensome In terms of total state expenditures Medicaid is the largest item in states budgets and will only get larger Given that the ACA is still in its infancy and regulatory and legislative changes may occur in the near future to address problems with 1
INTRODUCTION JASON J. FICHTNER  M  edicaid is now the largest health insurance provider in the United States. Unlike Medic...
INTRODUCTION the initial rollout and implementation of the ACA it is imperative to consider how significantly the ACA will further negatively impact federal and state budgets and affect the economy at large This book examines the economics of Medicaid and discusses the costs and consequences of a program that ends up providing poorquality care at high costs Part 1 deals with the challenges facing the Medicaid program In chapter 1 Joe Antos describes the structure of Medicaid including how the program is operated by each individual state yet is jointly financed by the federal governments and states Antos examines the perverse incentives and negative effects this type of financing arrangement creates namely that states have adopted creative financing schemes to take advantage of loopholes to claim excess federal dollars Further Antos discusses how poorer states that actually need the most help in financing coverage for lowincome populations are the least able to take advantage of the federal matching money by expanding their Medicaid programs He also addresses what becomes a clear theme throughout the book that there exists limited access to high quality care and numerous disincentives to reducing the costs of Medicaid Former director of the CBO June O Neill provides an account of Medicaid s cost drivers in chapter 2 noting that while Medicaid costs have grown with the increase in eligible participants the composition of the Medicaid population has shifted The number of children and working age adults receiving benefits has rapidly increased to almost three fourths of total beneficiaries yet these groups incur relatively low per capita medical costs and thus account for only one third of total Medicaid expenditures Meanwhile the number of disabled beneficiaries who also employ high cost services has grown rapidly Part 2 deals with Medicaid s budgetary impact In chapter 3 I discuss the federal side of the budget equation and Nina Owcharenko details the state side of the budget equation in chapter 4 Both chapters examine the growth in costs associated with the Medicaid program It becomes clear after reading these two chapters that Medicaid is on a fiscally dangerous trajectory that will only continue to crowd 2
INTRODUCTION  the initial rollout and implementation of the ACA, it is imperative to consider how significantly the ACA wi...
JASON J FICHTNER out the ability of the federal government and the states to pay for other government services Part 3 of the book focuses more on the ACA and Medicaid In chapter 5 Medicaid under the Affordable Care Act Charles Blahous discusses how the ACA dramatically expanded the number of people eligible for Medicaid and the financial incentives offered to the states to expand coverage Blahous then describes the financial dilemma faced by the states on whether to expand Medicaid under the ACA He also tackles the tricky question of whether the ACA will reduce or increase federal Medicaid costs and the impact the expansion will have on the federal budget Chapter 6 provides an interesting essay on the implications of Medicaid on the practice of medicine Darcy Nikol Bryan delivers a physician s perspective as an obstetrician gynecologist in California Bryan provides an overview of the philosophical underpinnings of the debate about how to best provide health care to low income people and then examines the tensions created by Medicaid in the practice of medicine She then discusses that the focus on providing health insurance has shifted the focus away from health outcomes The final three chapters of the book more fully detail the health outcome failures caused by Medicaid and suggest possible reforms Whereas the earlier chapters in the book also discuss possible reforms these three chapters provide more in depth analysis James Capretta addresses the more mainstream reforms in chapter 7 Reforming Medicaid Capretta discusses waiver requests that states can propose to the federal government that allow the Department of Health and Human Services to waive certain Medicaid requirements These waivers raise a fundamental question of whether states are being treated equitably and whether the waiver process needs to be reformed He also describes potential Medicaid reforms such as block grants and per capita caps concluding that the fundamental federal state relationship of Medicaid is in need of reform In chapter 8 How to Achieve Sustainable Medicaid Reform Thomas Miller goes a step further He starts off quickly by pointing 3
JASON J. FICHTNER  out the ability of the federal government and the states to pay for other government services. Part 3 o...
INTRODUCTION out the financial trouble Medicaid was in before the ACA and how the ACA will only exacerbate a troubled program Miller takes issue with critics of the ACA who advocate simple repeal of the ACA and he further suggests that in order to make Medicaid sustainable more serious reforms need to be adopted than those that are commonly suggested In a more comprehensive look at reform Miller suggests that our approach to health policy should support broader economic policy initiatives such as work and saving incentives to better help protect low income people In the concluding chapter Robert Graboyes looks at Medicaid and health picking up where Miller left off Graboyes discusses the efficacy of Medicaid and whether it is even capable in its current form of providing high quality health care efficiently and with low cost While discussing the more common approaches to Medicaid reform Graboyes goes further and suggests that the only way to achieve better health care outcomes is by embracing the private market whether within Medicaid or through an appropriate replacement to Medicaid With or without Medicaid eligibility expansion Medicaid is on a trajectory to require increasing resources at state and federal levels of government creating difficult budgetary tradeoffs for both unless major and significant reforms to Medicaid are implemented At the same time it is important to recognize that expanded coverage does not necessarily translate into better care and Medicaid s care does not necessarily translate into better health A growing body of evidence shows that Medicaid badly fails the enrollees it is designed to help Given these uncertainties it is an appropriate time to assess how effectively Medicaid as an institution is capable of improving or maintaining its recipients health and how the program itself can be improved This book will discuss these challenges and possible reforms 4
INTRODUCTION  out the financial trouble Medicaid was in before the ACA and how the ACA will only exacerbate a troubled pro...
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PART 1 CHALLENGES FACING MEDICAID
PART 1   CHALLENGES FACING MEDICAID
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CHAPTER 1 THE STRUCTURE OF MEDICAID JOSEPH ANTOS M edicaid is the primary means of financing health care for America s poor The program is operated by each state and jointly financed by the federal and state governments under a matching arrangement The federal government pays a portion of every bill submitted to it by the states with no overall budget limit On average one dollar spent on Medicaid covered health services costs the state 43 cents with the remainder paid by the federal government 1 Those federal payments are accompanied by a complex set of regulations and requirements that limit the flexibility of states to run their own programs States are pulled in opposite directions as a result of this payment arrangement On the one hand states have an incentive to expand the generosity of their programs because the net cost to the state is significantly less than the full cost of the additional services provided to their low income residents On the other hand states have balanced budget requirements that limit the amount they can finance from their own budgets for any Medicaid expansion States have responded to these financial incentives in predictable ways Reflecting their greater budget capacity wealthier states have 9
CHAPTER 1   THE STRUCTURE OF MEDICAID  JOSEPH ANTOS  M  edicaid is the primary means of financing health care for America ...
THE STRUCTURE OF MEDICAID expanded eligibility for Medicaid well beyond federal minimums Poorer states that need more help covering the health costs of their low income populations have been less able to take advantage of the federal matching money by expanding their Medicaid programs As will be explained later in this chapter states have adopted creative financing schemes that take advantage of statutory and regulatory loopholes to claim excessive federal matching payments An Urban Institute study shows that the effective federal match rate for some states may have increased from about 57 percent of Medicaid cost to as much as 86 percent through the use of such schemes 2 This drives up federal spending for Medicaid which is an open ended entitlement that automatically pays its share of the bills submitted by the states even when the states have not paid their full share Regardless of budget capacity state Medicaid programs pay far less than Medicare or private insurers for health services According to federal actuaries Medicaid payment rates for inpatient hospital services in 2009 were about 66 percent of private health insurance payment rates 3 Medicaid payment rates for physician services in 2008 averaged about 58 percent of private rates These consistently low payments have limited Medicaid beneficiaries access to medical services they have been promised Low payment rates do not translate into low spending by either the federal or state governments The Congressional Budget Office CBO estimates that federal 2013 spending for Medicaid will total 265 billion 4 Total spending including by states comes to 465 billion Between 2000 and 2012 Medicaid spending grew 7 percent a year 5 In contrast the American economy grew only 4 2 percent annually over that period 6 Although this rapid growth in spending places an increasing burden on state budgets regulatory barriers limit what states can do to reduce Medicaid costs and improve the delivery of health services to beneficiaries Even relatively modest changes in program operations must be approved by the Centers for Medicare and Medicaid Services CMS in a process that can be time consuming and uncer10
THE STRUCTURE OF MEDICAID  expanded eligibility for Medicaid well beyond federal minimums. Poorer states that need more he...
JOSEPH ANTOS tain Moreover because the federal government shares in the cost of Medicaid with the states it also shares in any savings that the states achieve through better policies and more effective management At least 50 cents of every dollar that is saved by the state must be turned over to the federal government This discourages states from investing in changes that could make Medicaid a more efficient program The Patient Protection and Affordable Care Act ACA proposed to expand the number of people covered by Medicaid but the legislation failed to change the financial incentives that produce second class health care at first class cost 7 Structural reforms including shifting from a matching grant to a modified block grant and allowing beneficiaries more freedom in how they use their Medicaid subsidy are necessary to reduce unnecessary spending and promote high quality patient centered care THE BASICS OF MEDICAID FINANCING Medicaid pays for a broad range of health and long term care services for low income individuals including children persons with disabilities and the elderly 8 Some 72 million people will have received Medicaid benefits at some point during the year 2013 9 Over the next decade Medicaid will spend 7 5 trillion with federal payments accounting for 4 3 trillion Although it is a national program states have some latitude to tailor Medicaid to meet local needs and preferences including states ability to finance public programs When Medicaid was enacted in 1965 states were given the option to participate However any state choosing not to participate would lose substantial federal subsidies to help cover the health care costs of low income individuals who would otherwise be unable to pay their medical bills Legally Medicaid is voluntary Practically no state would consider dropping the program unless the federal government drastically cut its financial support Medicaid is a means tested program benefits are available only to people whose income and assets fall below certain levels Not 11
JOSEPH ANTOS  tain. Moreover, because the federal government shares in the cost of Medicaid with the states, it also share...
THE STRUCTURE OF MEDICAID every low income individual however is eligible for Medicaid The federal government has established eligibility categories such as being a low income child a pregnant woman or an adult with dependent children States must cover people in those groups and many states have expanded Medicaid beyond minimum eligibility requirements established by the federal government However eligibility is not uniform and certain groups notably childless adults have traditionally not been eligible for Medicaid 10 The ACA included a requirement that states expand coverage to at least all people with incomes up to 133 percent of the federal poverty level 11 A state failing to comply would lose all federal funds for its Medicaid program That provision was struck down as unconstitutionally coercive in a Supreme Court ruling leaving any expansion of income eligibility standards up to the states 12 States are required to cover acute health services including hospital and physician services laboratory and imaging services nursing facility and home health care and family planning services Most states offer optional services including prescription drugs dental care durable medical equipment and personal care services States are required to cover acute health services including hospital and physician services laboratory Medicaid is also an entitlement program Individuals who are eliand imaging services nursing facility and home health care and family planning services Most states gible for Medicaid have a legal right to payment for services offered offer optional services including prescription drugs dental care durable medical equipment and under the program States also have a legal right to federal matching personal care services payments for the services provided to eligible individuals Congress Medicaid is also an entitlement program Individuals who are eligible for Medicaid hprogramsright to can change federal payment obligations to state Medicaid ave a legal payment for sonly by ffered under the program States also have a legal right trequirements ervices o changing program rules including eligibility o federal matching payments for the services provided to eligible individuals Congress can change federal payment and covered services This budget treatment leaves Medicaid on autoobligations to state Medicaid programs only by changing program rules including eligibility matic pilot less likely to be in the legislative mix when federal deficits requirements and covered services This budget treatment leaves Medicaid on automatic pilot less likely to be in must be reduced hen federal deficits must be reduced the legislative mix w The federal government shares in the cost that states incur for their The federal government shares in the cost that states incur assistance percentage FMAP Medicaid benefits The federal medical for their Medicaid benefits The federal medical assistance percentage FMAP for medical services which determines the federal payment is for medical services which determines the federal payment is tied to tied to state per capita income according to the following formula state per capita income according to the following formula FMAP 100 State per capita income 0 45 US per capita income The law also provides that no state can have a match rate lower than 50 percent or higher than 83 12 percent of the cost of benefits xii If the match rate is 50 percent the federal government and the state share equally in the cost of Medicaid services If the match rate is 60 percent the state pays 40 percent of the cost and the federal government pays the rest Because the FMAP is a percentage payment rather than a fixed dollar amount it is a countercyclical
THE STRUCTURE OF MEDICAID  every low-income individual, however, is eligible for Medicaid. The federal government has esta...
JOSEPH ANTOS The law also provides that no state can have a match rate lower than 50 percent or higher than 83 percent of the cost of benefits 13 If the match rate is 50 percent the federal government and the state share equally in the cost of Medicaid services If the match rate is 60 percent the state pays 40 percent of the cost and the federal government pays the rest Because the FMAP is a percentage payment rather than a fixed dollar amount it is a countercyclical program that automatically accounts for economic downturns or other state specific circumstances such as increasing cost or use of services that drive up Medicaid spending Federal payments keep pace with higher program costs without the need for legislation to adjust the formula The FMAP is also designed to enable states with different fiscal capacities to provide roughly equivalent benefits although that does not always work out in practice In 2013 Mississippi received the highest regular match equal to 73 4 percent while 14 high income states including New York and California received a 50 percent match The calculation is complicated by adjustments for states that experienced a major disaster such as the 2010 oil spill in Louisiana and increases to the matching percentage required under the ACA for states expanding Medicaid eligibility The 50 percent minimum match rate provides more funding to high income states than they would otherwise receive according to the FMAP formula The FMAP for those states would fall as low as 23 percent if not for the 50 percent floor 14 However it is doubtful that Medicaid could have been enacted into law without the FMAP floor which ensured high income states a politically acceptable return on the high taxes they pay to maintain the program Higher income states have more generous Medicaid programs than low income states partly as a consequence of their richer economic base that enables them to draw down a greater share of federal dollars Eight states California New York Texas Pennsylvania Florida Ohio Michigan and Illinois received one half of total federal Medicaid 13
JOSEPH ANTOS  The law also provides that no state can have a match rate lower than 50 percent or higher than 83 percent of...
THE STRUCTURE OF MEDICAID Table 1 Eight Highest Recipients of Federal Medicaid Spending 2011 State Federal spending millions Percentage of national spending FMAP California 33 935 12 58 50 00 New York 30 198 11 19 50 00 Texas 19 264 7 14 60 56 Pennsylvania 13 228 4 90 55 64 Florida 11 721 4 34 55 45 Ohio 11 058 4 10 63 69 Michigan 8 901 3 30 65 79 Illinois 7 751 2 87 50 20 Total 136 056 50 43 National 269 800 100 00 63 40 Sources Medicaid and CHIP Payment Access Commission Report to the Congress on Medicaid and CHIP Washington DC March 15 2012 98 99 http www macpac gov reports and Henry J Kaiser Family Foundation Federal Medical Assistance Percentage FMAP for Medicaid and Multiplier Menlo Park CA http kff org medicaid state indicator federal matching rate and multiplier funding in 2011 table 1 15 As a result states in the Northeast and the West Coast tend to offer Medicaid to people higher up on the economic scale than states in the South Ten states have consistently received the 50 percent minimum match rate California Colorado Connecticut Maryland Massachusetts Minnesota New Hampshire New Jersey New York and Virginia figure 1 16 Nine of them cover children in families with incomes at least 250 percent of the federal poverty level FPL and eight cover working parents with incomes at least equal to the FPL 17 Ten states that have consistently received the highest FMAPs over the past decade with average rates ranging from 77 6 to 71 0 percent are Mississippi West Virginia Arkansas New Mexico Utah Kentucky Idaho South Carolina Alabama and Montana 18 Only three cover children in families with incomes at least 250 percent of the FPL and none cover working parents with incomes at or above poverty 14
THE STRUCTURE OF MEDICAID  Table 1. Eight Highest Recipients of Federal Medicaid Spending, 2011 State  Federal spending  m...
JOSEPH ANTOS Figure 1 Top 10 and Bottom 10 FMAP Averages 2004 13 90 80 70 60 50 40 30 20 10 0 MS WV AR NM UT KY ID SC AL MT VA CA CO CT MD MA MN NJ NY NH Source Kaiser Family Foundation Federal Medical Assistance Percentage FMAP for Medicaid and Multiplier http kff org medicaid state indicator federal matching rate and multiplier Financial incentives and each state s capacity to finance its share of Medicaid costs contribute to the variations in program generosity But differences in political and philosophical views regarding the role of government also help explain variations across states For more on the budgetary impacts of Medicaid at the federal and state levels see chapters 3 and 4 pages 49 and 65 DISINCENTIVES FOR REDUCING PROGRAM COST The major recession in 2007 and 2008 and the slow recovery since have sharply increased the federal budget deficit Revenues declined as the economy slumped and stimulus spending drove up outlays In September 2006 outstanding debt of the US government totaled 8 5 trillion 19 By September 2012 the debt had almost doubled to 16 1 trillion States like the federal government face increasing demands on their budgets Unlike the federal government states operate under a balanced budget rule and have limited ability to borrow their way out of fiscal distress 15
JOSEPH ANTOS  Figure 1. Top 10 and Bottom 10 FMAP Averages, 2004   13 90       80       70       60       50       40     ...
THE STRUCTURE OF MEDICAID Medicaid accounts for a major portion of state budgets In fiscal year FY 2012 Medicaid represented 23 9 percent of state spending on average 20 With the rising cost of health care and tighter budgets the program has increased fiscal pressure on states Perhaps surprisingly Medicaid has not become a target for those looking to cut state budgets Because of the matching formula states are reluctant to adopt costreducing policies in Medicaid There is a built in bias in favor of maintaining or expanding the program If a state such as New York with its 50 percent match rate wished to cut its own Medicaid spending by 1 million it would have to adopt policies that cut total Medicaid spending in the state by 2 million Under the matching formula half of the savings would accrue to the federal government The bias is even stronger for low income states such as Mississippi which had a 73 4 percent match rate in 2013 For the state to save 1 million it would have to cut total spending by 3 8 million The financial terms facing a state seeking to cut its Medicaid spending are unfavorable In most cases a state reducing its spending will cut other programs that are paid by funds covered entirely by the state rather than Medicaid The political and technical challenges of reducing Medicaid spending are just as daunting Reducing eligibility means informing certain individuals that they no longer have medical coverage Reducing benefits means informing certain individuals that they must pay out of pocket for a service previously covered by Medicaid Reducing payment rates to doctors and hospitals means further cuts in payments that already qualify as the lowest in the market 21 Such cuts hit the financial bottom lines of providers who already feel underpaid and threaten the already limited access to care for those in need Consequently we rarely have seen widespread state action to reduce Medicaid spending despite the program s prominence in state budgets A notable exception came in the wake of a temporary increase in federal subsidies for Medicare which was part of the economic stimulus under the American Recovery and Reinvestment Act of 2009 ARRA 22 All states received a minimum 6 2 percentage point 16
THE STRUCTURE OF MEDICAID  Medicaid accounts for a major portion of state budgets. In fiscal year  FY  2012, Medicaid repr...
JOSEPH ANTOS increase in their FMAPs starting in 2009 The increase was phased out during the first six months of 2011 Although states recognized that the enhanced match rate was not likely to be extended indefinitely they also had a strong incentive to take full advantage of the higher match while it was available The recession led to increases in Medicaid spending and enrollment Many states used the additional money to expand eligibility for the program and to delay implementing previously planned cost cutting policies 23 The shift back to much lower match rates required most states to adopt aggressive cost reducing policies 24 Illinois limited Medicaid enrollees to no more than four prescriptions a month imposed a copayment for prescriptions for adults who are not pregnant eliminated nonemergency dental care for adults and cut 25 000 adults from the rolls 25 Other states cut pay for health care providers eliminated coverage for optional services imposed new fees for the routine use of hospital emergency rooms and increased other payments made by Medicaid enrollees According to the National Governors Association and the National Association of State Budget Officers 33 states either froze or cut provider payments in 2012 26 Nineteen states limited benefits and seven imposed additional copayments on enrollees Cutting program costs by finding more efficient ways to provide care to Medicaid patients is more desirable than cutting alreadylow provider payments or reducing benefits but it is also difficult to accomplish and unlikely to yield budget savings in the short term Eighteen states expanded managed care in 2012 and 14 states adopted other reforms of the delivery system In addition 31 states adopted stronger program integrity measures intended to reduce fraud and abuse in Medicaid billing 27 Cost savings are possible by shifting Medicaid beneficiaries from a fee for service system to managed care In a managed care delivery system enrollees get most or all of their Medicaid services from an organization under contract with the state Almost 50 million people receive benefits through some form of managed care on either a voluntary or mandatory basis 28 17
JOSEPH ANTOS  increase in their FMAPs starting in 2009. The increase was phased out during the first six months of 2011. A...
THE STRUCTURE OF MEDICAID The sharp drop in federal matching payments was an unprecedented event that forced states to take unprecedented action The typical experience is less dramatic with states making smaller adjustments to eke out moderate budget savings M A X I MIZI NG FEDER A L PAY M ENTS Do states actually pay their share of Medicaid expenses On the face of it the answer is yes But the way states cover their costs has long been a source of controversy with the federal government States have used legal financing mechanisms to shift substantial costs to the federal government local governments and health care providers By adopting various financing mechanisms states can increase their effective match rates and reduce the amount they must pay out of their own budget By reducing their reliance on general funds states can circumvent balanced budget requirements which otherwise limit the ability to expand their Medicaid programs States are required to adhere to broad federal guidelines regarding how they pay their share of Medicaid costs Not surprisingly states have a strong incentive to identify payment sources that maximize the federal payment The rules are subject to interpretation and states vary in their use of payment maximization techniques States can rely on several sources of funding for Medicaid including general funds revenue derived from personal and corporate income taxes and sales taxes local government funds provider taxes and other sources 29 Public attention has focused on several financing mechanisms that have been used and in some cases abused to increase federal Medicaid payments to a state 30 States are permitted to tax providers to generate funds to cover part of the state s share of Medicaid costs 31 Until the early 1990s some states exploited this loophole in the law by using taxes on hospitals and nursing homes to generate federal matching payments For example hospitals might agree to pay 10 million in provider taxes in exchange for the state increasing Medicaid hospital reimbursement by 20 mil18
THE STRUCTURE OF MEDICAID  The sharp drop in federal matching payments was an unprecedented event that forced states to ta...
JOSEPH ANTOS lion On balance hospitals gain 10 million in revenue If the FMAP is 60 percent the federal government would pay an extra 12 million That gives the state budget an extra 2 million that it would otherwise not have received Legislation limited but did not eliminate states ability to draw down federal matching funds with provider tax revenue 32 The provider tax must be broad based and uniform to reduce the possibility of collusion The tax revenue cannot exceed 25 percent of the state s share of program cost and states cannot promise to reimburse providers Despite these restrictions all 50 states used provider taxes to help finance Medicaid in 2013 33 Following the previous example a state can still impose 10 million in provider taxes but can increase Medicaid reimbursements by only 8 million 34 With a 60 percent FMAP the federal government pays 4 8 million that it would not have paid otherwise less than the 12 million extra federal payment that was available in earlier times but still worth the effort The providers lose 2 million but the state gains 6 8 million The state can use that extra money for any purpose including programs unrelated to Medicaid or health care 35 Other financing mechanisms create similar opportunities to increase the federal matching payment States have used intergovernmental transfers IGTs disproportionate share hospital DSH payments and upper payment limits UPLs to increase the federal share of Medicaid costs above the amount prescribed by the FMAP formula 36 A state may use IGTs which are funds transferred from counties or other local government entities to finance up to 60 percent of its Medicaid share States can increase payments to nursing homes and other providers operated by a local government above their actual cost of operation which allows the state to draw down a larger federal matching payment The IGT mechanism can be used to transfer some or all of the extra Medicaid payment from the local government back to the state budget leaving the local provider no worse off As in the previous example this method increases the effective match rate and provides the state with additional funding that can be used for any purpose 37 19
JOSEPH ANTOS  lion. On balance, hospitals gain  10 million in revenue. If the FMAP is 60 percent, the federal government w...
THE STRUCTURE OF MEDICAID States provide supplementary payments to hospitals that serve large numbers of low income and uninsured patients States make DSH payments to county owned hospitals which increases their Medicaid spending and triggers a federal match 38 Subsequently states can use IGTs to recover a portion of the DSH payment The net effect is to increase federal payments while providing some but not all of those funds to hospitals serving low income populations 39 The federal government attempted to limit how much states can increase provider payment rates and thus curb some financing abuses States have broad authority to set payment rates for Medicaid providers but the total amount they can pay each category of provider is restricted by the UPL 40 The UPL is a statewide budget cap on Medicaid provider payments limiting them to no more than the estimated amount Medicare would have paid for the same services The provider categories include several classes of hospitals nursing homes intermediate care facilities and outpatient facilities Because Medicaid generally pays lower rates than Medicare states have flexibility under the UPL to give substantial supplemental payments to particular hospitals or other providers without exceeding the aggregate budget cap for a provider category In a 2012 study the Government Accountability Office GAO found that 39 states made supplemental payments to 505 DSH hospitals 41 Total Medicaid payments to those hospitals exceeded the cost of providing care to Medicaid patients by 2 7 billion GAO raised concerns about whether these large additional payments were being used for Medicaid purposes The evidence is compelling that the federal government is paying more than its formula based share of Medicaid costs States have strong incentives to maximize federal payments and complex federal rules provide ample opportunity for states to use creative financing solutions A recent study suggests that those financing methods increase federal Medicaid spending by 5 percent 12 5 billion in 2013 alone 42 The federal government has generally been one step behind the most aggressive states closing loopholes in the rules or imposing limitations 20
THE STRUCTURE OF MEDICAID  States provide supplementary payments to hospitals that serve large numbers of low-income and u...
JOSEPH ANTOS after a particular financing technique has been in widespread use This is unavoidable under Medicaid s shared financing structure Sensibly states organize their programs to their own advantage leaving the federal government to retrofit the regulations to close off unanticipated ways states have devised to increase federal payments LIMITED ACCESS TO CARE Even the most ardent supporters of Medicaid recognize that the program is plagued by problems regarding access to care Sara Rosenbaum of George Washington University points out that poor Americans have faced a substantial vacuum in actual access to health care despite Medicaid s coverage guarantee 43 A major cause of that access problem is the low rates of participation in Medicaid among health care providers which is the direct result of low payment rates and overly burdensome administrative practices that delay payment and add to the headaches of dealing with state bureaucracy Medicaid payments for medical services are much lower than those offered by other payers Physicians receive about 58 percent of what private insurers pay for comparable services 44 Even the uninsured are likely to pay more than Medicaid In a study conducted by MIT economists Jonathan Gruber and David Rodriguez nearly 60 percent of the 3 860 physicians surveyed reported higher fees from the uninsured than from Medicaid 45 Low fees coupled with excessive paperwork and late payments make it difficult for physicians to accept Medicaid patients 46 Consequently Medicaid patients have difficulty getting appointments with physicians This results in delayed treatment increasing the use of hospital emergency departments and increasing costs to the health system The 2008 Health Tracking Physician Survey found that only about half of all physicians will accept new Medicaid patients 47 Internists were 8 5 times more likely to refuse to see a new Medicaid patient as they were to refuse a patient with private coverage The 2011 National Ambulatory Medical Care Survey shows that 30 percent of physicians would refuse 21
JOSEPH ANTOS  after a particular financing technique has been in widespread use. This is unavoidable under Medicaid   s sh...
THE STRUCTURE OF MEDICAID new Medicaid patients but 92 percent would take new patients who pay their own bills without the administrative hassle of any insurance 48 Another study confirms that the type of health insurance you have can determine the kind of care you receive Researchers at the University of Pennsylvania called 273 specialty clinics to determine whether they would accept a child with coverage from Medicaid or Children s Health Insurance Program CHIP 49 In more than half of the calls the child s insurance status was requested before the caller was told whether an appointment could be scheduled No appointment was given to twothirds of the children described as Medicaid or CHIP patients Only 11 percent of children described as having Blue Cross Blue Shield coverage were refused an appointment With limited access to physician services Medicaid patients are likely to put off seeking medical attention and they are more likely to seek care through the hospital emergency department The 2003 Community Tracking Survey shows that Medicaid beneficiaries use emergency rooms two to three times more than people with private insurance 50 The ER is often the only place a Medicaid patient can receive care Poorer access to care leads to poorer health outcomes for Medicaid patients This was clearly demonstrated by a groundbreaking study of 893 658 patients undergoing major surgical operations between 2003 and 2007 51 The study conducted by medical researchers from the University of Virginia Health System found that Medicaid patients experienced worse outcomes than patients with private insurance Medicare or no coverage at all Three measures of care quality were examined the rate of in hospital mortality average length of hospital stay and total cost Eight major surgical operations were studied with the most frequent being coronary artery bypass graft colectomy bowel surgery and hip replacement The analysis controlled for age gender income geographic region type of surgical operation and 30 comorbid conditions These adjustments corrected for differences in patient populations that could explain variations in patient outcomes other than the quality of care provided by the surgical team For example 22
THE STRUCTURE OF MEDICAID  new Medicaid patients, but 92 percent would take new patients who pay their own bills without t...
JOSEPH ANTOS Table 2 Outcomes for Surgical Patients Adjusted for Patient and Hospital Characteristics Outcome Private Medicare Uninsured Medicaid In hospital mortality vs private insurance 54 74 97 Length of stay days 7 38 8 77 7 01 10 49 Total cost per case 63 057 69 408 65 667 79 140 Memorandum Number of observations 337 535 491 829 24 035 40 259 Source Damien J LaPar et al Primary Payer Status Affects Mortality for Major Surgical Operations Annals of Surgery 252 no 3 2010 544 51 Riverwoods Il http www ncbi nlm nih gov pmc articles PMC3071622 pdf nihms279555 pdf Medicare patients are older than other patient groups and more likely to be in poor health which could lead to poorer outcomes Medicaid patients were almost twice as likely to die in the hospital following major surgery than those with private insurance and considerably more likely to die than Medicare patients or the uninsured table 2 About 1 3 percent of the 337 000 privately insured patients in the sample died in the hospital following surgery Medicaid patients were 97 percent more likely than privately insured patients to die Medicare patients and the uninsured had better outcomes they were respectively 54 percent and 74 percent more likely to die than those with private insurance Adjusting for differences among hospitals and patients other than their insurance status the average Medicaid patient stayed about three days longer in the hospital than those with private insurance Longer lengths of stay for observationally equivalent patients are consistent with poorer patient outcomes Despite lower payment rates the increased use of services made Medicaid costs higher than for patients with other coverage Average Medicaid costs were just over 79 000 per surgery 25 percent higher than the cost incurred by privately insured patients and substantially higher than the costs paid by Medicare patients or the uninsured 23
JOSEPH ANTOS  Table 2. Outcomes for Surgical Patients, Adjusted for Patient and Hospital Characteristics Outcome  Private ...
THE STRUCTURE OF MEDICAID These negative results are confirmed by other studies which also show a greater frequency of late diagnosis which reduces the chances for successful treatment and higher mortality rates when comparing Medicaid patients to those with other coverage 52 This is not surprising given the conflicting incentives facing states States have kept provider payment rates substantially below market levels to reduce their own spending but states have also used administrative measures to magnify the amount the federal government pays through the matching formula An overhaul of Medicaid financing and governance is needed to improve the care delivered to beneficiaries promote greater efficiency and bring an honest accounting system to the program R EFOR M I NG M EDICA ID Medicaid is a federal state partnership but an uneasy one States run their own programs but they must satisfy a vast array of federal requirements that have been justified as protecting the interests of the poor health care providers and taxpayers In fact none of those interests are well served Financing is the major reason the program does not perform well Because of the matching payment mechanism states must share the savings they could receive by adopting delivery system reforms such as shifting from fee for service payment to managed care plans that may not be popular with local health care providers Even if that political resistance can be overcome states must negotiate a waiver of federal Medicaid rules from CMS That can be a lengthy and ultimately fruitless process 53 Matching payments partially insulate states from the rising cost of health care and reduce their willingness to make delivery system reforms Replacing the matching grant formula with a fixed payment and giving states freer rein to adopt reforms without having to seek permission from CMS for even small changes would give states stronger financial incentives and greater ability to manage their programs responsibly 24
THE STRUCTURE OF MEDICAID  These negative results are confirmed by other studies, which also show a greater frequency of l...
JOSEPH ANTOS Several state governors have indicated that they need more flexibility in running their programs before they would be willing to expand Medicaid coverage under the ACA even with 100 percent funding for new enrollees for the first few years 54 Governors from Nebraska Tennessee Virginia and Wyoming claimed they would move Medicaid to a block grant and replace thousands of pages of regulatory micromanagement with clear objectives agreed to by both the federal government and the states The head of the Texas Human Services Commission pointed out that allowing states to manage for results would make better use of Medicaid dollars and support local solutions to local problems 55 A block grant creates a fixed grant from the federal government to the states which is indexed for general inflation and population growth 56 For a more detailed explanation of the mechanics of block grants see chapter 7 page 138 Unlike the federal matching payment a block grant would not increase as program spending increases through either increased enrollment or rising costs of medical services An alternative to a block grant is a per capita cap This approach would fix the federal subsidy amount for each enrollee rather than the payment made to the state for all Medicaid enrollees Akin to a capitation payment made to health maintenance organizations a per capita federal payment gives states strong incentives to control unnecessary costs without penalizing them if enrollment increases and without making excess federal payments if enrollment drops Per capita cap proposals have recently been advanced as a solution to the perverse financial incentives of the current system 57 Such proposals can be designed to account for differences in populations covered by Medicaid and other factors outside the direct control of the state that could increase program costs Some enrollee groups including those who need long term care services and supports have significantly higher Medicaid costs than average enrollees Setting separate payment rates for such groups can more accurately track the program costs and ensure equitable cost sharing between states and the federal government 25
JOSEPH ANTOS  Several state governors have indicated that they need more flexibility in running their programs before they...
THE STRUCTURE OF MEDICAID CONCLUSION Medicaid is the largest public health program for low income Americans The ACA relies on a greatly expanded Medicaid program to provide health coverage for an additional 12 million people over the next two years a 30 percent increase in national enrollment 58 That expansion will increase federal spending by 710 billion through 2023 adding greatly to a worsening fiscal situation for both the federal and state governments Those additional enrollees will be joining a program in need of reform Spending is high but low provider payment rates reduce patient access to providers and necessary care Federal financing arrangements must be reformed if we hope to slow the growth of Medicaid spending and improve program performance NOTES 1 Kaiser Commission on Medicaid and the Uninsured The Medicaid Program at a Glance March 2013 http kff org medicaid fact sheet the medicaid program at a glance update 2 Teresa A Coughlin Stephen Zuckerman and Joshua McFeeters Restoring Fiscal Integrity to Medicaid Financing Health Affairs 26 no 5 2007 1469 1480 http content healthaffairs org content 26 5 1469 full 3 John D Shatto and M Kent Clemens Projected Medicare Expenditures under Illustrative Scenarios with Alternative Payment Updates to Medicare Providers Baltimore MD CMS Office of the Actuary May 18 2012 http www cms gov Research Statistics Data and Systems Statistics Trends and Reports Reports TrustFunds Downloads 2012TRAlternativeScenario pdf 4 Congressional Budget Office Medicaid May 2013 Baseline May 14 2013 http www cbo gov publication 44204 5 Author s calculation based on Congressional Budget Office Historical Budget Data February 5 2013 http www cbo gov publication 43904 6 Author s calculation based on Bureau of Economic Analysis National Income and Product Accounts Tables Washington DC revised July 21 2013 http www bea gov national index htm 7 Patient Protection and Affordable Care Act Pub L No 111 148 124 Stat 119 2010 codified as amended sections of 42 U S C Office of the Legislative Counsel Compilation of Patient Protection and Affordable Care Act as Amended through May 1 2010 May 2010 http www google com url sa t rct j q esrc s source web cd 2 ved 0CDMQFjAB url http 3A 2F 2Fhousedocs house gov 2 Fenergycommerce 2Fppacacon pdf ei vk7ZUsiXD4XJsQSjqYGIBw usg AFQjC NFVOoqN6STcvhZkghIpdwxRG7 mOQ bvm bv 59568121 d cWc Joseph Antos The Medicaid Expansion Is Not Such a Good Deal for States or the Poor Journal of 26
THE STRUCTURE OF MEDICAID  CONCLUSION  Medicaid is the largest public health program for low-income Americans. The ACA rel...
JOSEPH ANTOS Health Politics Policy and Law 38 no 1 2013 179 186 http jhppl dukejournals org content early 2012 10 09 03616878 1898848 full pdf 8 Kaiser Commission The Medicaid Program at a Glance 9 Congressional Budget Office Medicaid May 2013 Baseline 10 Kaiser Commission on Medicaid and the Uninsured Expanding Medicaid to LowIncome Childless Adults under Health Reform Key Lessons from State Experiences July 1 2010 http kff org health reform issue brief expanding medicaid to low income childless adults 11 Using 133 or 138 percent of the federal poverty level FPL are both correct The ACA expands Medicaid funding to cover adults under age 65 with income up to 133 percent of the FPL For most people the law also allows for up to 5 percent of income to be disregarded for eligibility purposes which makes the effective rate 138 percent of the FPL 12 Henry J Kaiser Family Foundation A Guide to the Supreme Court s Decision on the ACA s Medicaid Expansion Menlo Park CA August 1 2012 http kff org health reform issue brief a guide to the supreme courts decision 13 This matching formula applies to the cost of most health services provided under Medicaid There is a 50 percent match rate for administrative expenses and a variety of adjustments are made for specific states covered populations types of service emergency situations and other circumstances See Alison Mitchell and Evelyne P Baumrucker Medicaid s Federal Medical Assistance Percentage FMAP FY2014 R42941 Washington DC Congressional Research Service January 30 2013 https www fas org sgp crs misc R42941 pdf 14 Vic Miller and Andy Schneider The Medicaid Matching Formula Policy Considerations and Options for Modification Washington DC AARP September 2004 http www aarp org health medicare insurance info 2004 aresearch import 918 2004 09 html 15 Listed in descending order of federal payment See Medicaid and CHIP Payment Access Commission Report to the Congress on Medicaid and CHIP Washington DC March 15 2012 98 99 16 Mitchell and Baumrucker Medicaid s Federal Medical Assistance Percentage FMAP FY2014 This report demonstrates that those states received a regular match rate of 50 percent every year at least since 2006 17 Kaiser Commission on Medicaid and the Uninsured Where Are States Today Medicaid and CHIP Eligibility Levels for Children and Non Disabled Adults March 28 2013 http kff org medicaid fact sheet where are states today medicaid and chip 18 Listed in descending order of FMAP rate See Henry J Kaiser Family Foundation Federal Medical Assistance Percentage FMAP for Medicaid and Multiplier accessed June 2 2013 http kff org medicaid state indicator federal matching rate and multiplier 19 US Treasury Historical Debt Outstanding Annual 2000 2012 http www treasurydirect gov govt reports pd histdebt histdebt_histo5 htm 20 National Association of State Budget Officers Summary NASBO State Expenditure Report December 20 2012 http www nasbo org sites default files Summary 20 20State 20Expenditure 20Report_0 pdf 21 Rich Daly Expand and Contract Modern Healthcare March 8 2013 http www modernhealthcare com article 20130308 MAGAZINE 303099955 27
JOSEPH ANTOS  Health Politics, Policy and Law 38, no. 1  2013 , 179   186, http   jhppl.dukejournals .org content early 20...
THE STRUCTURE OF MEDICAID 22 Vernon K Smith et al Moving ahead Amid Fiscal Challenges A Look at Medicaid Spending Coverage and Policy Trends Results from a 50 State Medicaid Budget Survey for State Fiscal Years 2011 and 2012 Menlo Park CA Henry J Kaiser Family Foundation October 1 2011 http kff org medicaid report moving ahead amid fiscal challenges a look at medicaid spending coverage and policy trends results from a 50 state medicaid budget survey for state fiscal years 2011 and 2012 23 Ibid 24 Phil Galewitz and Matthew Fleming 13 States Cut Medicaid to Balance Budgets Kaiser Health News July 24 2012 http www kaiserhealthnews org Stories 2012 July 25 medicaid cuts aspx 25 Henry J Kaiser Family Foundation Enhanced Medicaid Match Rates Expire in June 2011 June 1 2011 http kff org health reform fact sheet enhanced medicaid match rates expire in june 26 National Association of State Budget Officers and the National Governors Association Fiscal Survey of States Spring 2012 Spring 2012 http www nasbo org publications data fiscal survey states fiscal survey states spring 2012 27 Ibid 28 See Medicaid gov Managed Care accessed June 2 2013 http www medicaid gov Medicaid CHIP Program Information By Topics Delivery Systems Managed Care Managed Care html 29 Alison Mitchell Medicaid Financing and Expenditures R42640 Washington DC Congressional Research Service July 30 2012 http www fas org sgp crs misc R42640 pdf 30 Andy Schneider and David Rousseau Medicaid Financing in The Medicaid Resource Book Menlo Park CA Henry J Kaiser Family Foundation July 2002 http kff org medicaid report the medicaid resource book 31 Alison Mitchell Medicaid Provider Taxes RS22843 Washington DC Congressional Research Service March 15 2012 http strategichealthcare net pdfs 45121463d pdf 32 Medicaid Voluntary Contributions and Provider specific Tax Amendments Pub L No 102 234 1991 http www google com url sa t rct j q esrc s source web cd 2 ved 0CDQQFjAB url http 3A 2F 2Fwww gpo gov 2Ffdsys 2Fpkg 2FSTATUTE 105 2Fpdf 2FSTATUTE 105 Pg1793 pdf ei rV_ZUsiRB7PNsAT AqoCgBQ usg AFQjCNFGU2BEhcYzJgHzAVWb2Fy6JENiUA bvm bv 5956812 1 d cWc 33 Henry J Kaiser Family Foundation Quick Take Medicaid Provider Taxes and Federal Deficit Reduction Efforts January 10 2013 http kff org medicaid fact sheet medicaid provider taxes and federal deficit reduction efforts 2 34 Kathryn Linehan Medicaid Financing The Basics Washington DC National Health Policy Forum February 13 2013 http www nhpf org library details cfm 2528 35 Mitchell Medicaid Provider Taxes 36 David Rousseau and Andy Schneider Current Issues in Medicaid Financing An Overview of IGTs UPLs and DSH April 2004 http kff org other issue brief current issues in medicaid financing an overview 37 Ibid 38 Robert E Mechanic Medicaid s Disproportionate Share Hospital Program Complex 28
THE STRUCTURE OF MEDICAID  22.  Vernon K. Smith et al.,    Moving ahead Amid Fiscal Challenges  A Look at Medicaid Spendin...
JOSEPH ANTOS Structure Critical Payments Washington DC National Health Policy Forum September 14 2004 http www nhpf org library background papers BP _MedicaidDSH_09 14 04 pdf 39 Kathryn G Allen Medicaid Intergovernmental Transfers Have Facilitated State Financing Schemes GAO 04 574T Washington DC Government Accountability Office March 18 2004 http www gao gov new items d04574t pdf 40 Rousseau and Schneider Current Issues in Medicaid Financing 41 Government Accountability Office Medicaid More Transparency of and Accountability for Supplemental Payments Are Needed GAO 13 48 Washington DC Government Accountability Office November 26 2012 http www gao gov products GAO 13 48 42 Author s calculation based on Teresa A Coughlin Brian K Bruen and Jennifer King States Use of Medicaid UPL and DSH Financing Mechanisms Health Affairs 23 no 2 2004 245 257 http content healthaffairs org content 23 2 245 abstract 43 Sara Rosenbaum Medicaid and Access to Health Care A Proposal for Continued Inaction New England Journal of Medicine 365 July 14 2011 102 4 http www nejm org doi full 10 1056 NEJMp1106046 44 Shatto and Clemens Projected Medicare Expenditures 45 Jonathan Gruber and David Rodriguez How Much Uncompensated Care Do Doctors Provide working paper 13585 National Bureau of Economic Research Cambridge MA November 2007 http www nber org papers w13585 46 Peter J Cunningham and Ann S O Malley Do Reimbursement Delays Discourage Medicaid Participation by Physicians Health Affairs 28 no 1 2009 w17 w28 http content healthaffairs org content 28 1 w17 abstract 47 Ellyn R Boukus Alwyn Cassil and Ann S O Malley A Snapshot of U S Physicians Key Findings from the 2008 Health Tracking Physician Survey Data Bulletin no 35 Washington DC Center for Studying Health System Change September 2009 http www hschange com CONTENT 1078 1078 pdf 48 Sandra L Decker In 2011 Nearly One Third of Physicians Said They Would Not Accept New Medicaid Patients But Rising Fees May Help Health Affairs 31 no 8 2012 1673 79 http content healthaffairs org content 31 8 1673 abstract 49 Joanna Bisgaier and Karin V Rhodes Auditing Access to Specialty Care for Children with Public Insurance New England Journal of Medicine 364 no 24 2011 2324 33 http www nejm org doi pdf 10 1056 NEJMsa1013285 50 Boukus Cassil and O Malley A Snapshot of U S Physicians 51 Damien J LaPar et al Primary Payer Status Affects Mortality for Major Surgical Operations Annals of Surgery 252 no 3 2010 544 51 http www ncbi nlm nih gov pmc articles PMC3071622 pdf nihms279555 pdf 52 Avik Roy The Medicaid Mess How Obamacare Makes It Worse No 8 New York Manhattan Institute March 2012 http www manhattan institute org pdf ir_8 pdf 53 Paul Howard A Prescription for Medicaid National Affairs no 15 2013 51 70 http www nationalaffairs com publications detail a prescription for medicaid 54 Antos The Medicaid Expansion Is Not Such a Good Deal Kyle Cheney GOP Governors Name Their Price on Health Care Law Expansion Politico July 14 2012 http www politico com news stories 0712 78499 html 55 Tom Suehs Human Services Chief Why Medicaid Expansion Won t Work for Texas 29
JOSEPH ANTOS  Structure, Critical Payments  Washington, DC  National Health Policy Forum, September 14, 2004 , http   www....
THE STRUCTURE OF MEDICAID American Statesman July 21 2012 http www statesman com opinion insight human services chief why medicaid expansion wont work 2420186 html 56 Health Affairs Per Capita Caps in Medicaid Health Policy Brief April 18 2013 http www healthaffairs org healthpolicybriefs brief php brief_id 90 David Sutter Welfare Block Grants as a Guide for Medicaid Reform Working Paper 13 07 Mercatus Center Arlington VA March 2013 http mercatus org publication welfare block grants guide medicaid reform 57 For example see Fred Upton and Orrin Hatch Making Medicaid Work May 1 2013 http energycommerce house gov sites republicans energycommerce house gov files analysis 20130501Medicaid pdf 58 Estimate is average enrollment over the course of a year not the number of individuals who had at least one month of Medicaid enrollment In 2013 for example CBO estimates that average annual enrollment in Medicaid and CHIP is 36 million The number of people enrolled at any point during the fiscal year is estimated to be 71 million for Medicaid and 8 4 million for CHIP See Congressional Budget Office Effects on Health Insurance and the Federal Budget for the Insurance Coverage Provisions in the Affordable Care Act May 2013 Baseline May 14 2013 http www cbo gov publication 44190 Congressional Budget Office Medicaid May 2013 Baseline May 14 2013 http www cbo gov publication 44204 and Congressional Budget Office Children s Health Insurance Program May 2013 Baseline May 14 2013 http www cbo gov publication 44189 30
THE STRUCTURE OF MEDICAID  American-Statesman, July 21, 2012, http   www.statesman.com opinion insight  human-services-chi...
CHAPTER 2 MEDICAID S COST DRIVERS JUNE O NEILL M edicaid is the primary source of health care funding for America s low income population The program is now very large by most any standard In 2012 68 million people were enrolled in Medicaid at some point during the year 1 The program now serves a larger population than Medicare Medicaid is state based and administered but is jointly funded by the general revenues of the federal government and the states In fiscal year FY 2011 total Medicaid expenditures were 432 billion 64 percent of which was funded by the federal government and 36 percent by the states Each of the 50 states administers its own Medicaid program subject to federal requirements concerning such matters as program eligibility and the treatment of beneficiaries and medical providers But the states have little incentive to reduce costs because under the federal matching program they lose federal dollars for every program dollar saved Given the complex federal state funding structure and conflicting state incentives the federal government faces a daunting problem Rapid growth has characterized both Medicaid expenditures and Medicaid beneficiaries figures 1 and 2 Medicaid is an important contributor to the rise of total spending on health care in the United 31
CHAPTER 2   MEDICAID   S COST DRIVERS JUNE O   NEILL  M  edicaid is the primary source of health care funding for America ...
MEDICAID S COST DRIVERS Figure 1 Total Medicaid Payments Fiscal Years 1975 2010 In Millions Figure 1 Total Medicaid Payments Fiscal Years 1975 2010 Constant 2010 dollars 400 000 350 000 300 000 250 000 200 000 150 000 100 000 50 000 0 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Source M Medicaid Research Review Review 2012 Sta s cal Supplement 13 10 Source Medicare and edicare and Medicaid Research 2012 Statistical Supplement TableTable 13 10 Figure 2 Number of Medicaid Beneficiaries Fiscal Years 1975 2010 In Thousands Figure 2 Number of Medicaid Bene ciaries Fiscal Years 1975 2010 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Source M Medicaid Medicaid Review 2012 Statistical Supplement Table able Source Medicare andedicare and ResearchResearch Review 2012 Sta s cal Supplement T13 4 13 4 States which now consumes 17 7 percent of gross domestic product GDP National health expenditures NHE a global measure covering all health spending both privately and publicly funded rose from 12 5 percent of GDP in 1990 to 17 7 percent in 2011 Over the 32
MEDICAID   S COST DRIVERS  Figure 1. Total Medicaid Payments, Fiscal Years 1975   2010  In     Millions        Figure     ...
JUNE O NEILL same period spending on Medicaid increased as a share of NHE from 10 percent of NHE to 15 percent Measured as a percent of GDP Medicaid rose from 1 0 percent of GDP in 1985 to 2 9 percent in 2011 The growth in Medicaid expenditures over time has been spurred by increases in the size of the population groups eligible for program participation as well as by increases in the cost of delivering medical care to those groups Program costs are also affected by changes in the broader economy such as economic fluctuations and changes in provider prices Additionally program costs are affected by programmatic changes such as those in the federal share of total expenditures and in federal guidelines setting terms of eligibility as well as changes in state policies concerning covered services Fraud and abuse have also plagued both Medicare and Medicaid A recent study estimated that fraud and abuse in the two programs cost the federal government as much as 98 billion in 2011 2 Efforts by states to enlarge federal Medicaid payments have also been legally questionable at times 3 The Patient Protection and Affordable Care Act ACA is likely to have a significant effect on the Medicaid program 4 As originally passed the ACA mandated that state Medicaid programs cover all individuals with incomes below 133 percent of the federal poverty level FPL 5 This provision would extend Medicaid to those who were not previously eligible for the program because their incomes were too high The previous income limit had been set at the FPL In addition the expansion would extend coverage to single adults without children a group that had been excluded from Medicaid The expansion was scheduled to start in 2014 and was estimated to add 17 million nonelderly adults to the Medicaid rolls by 2022 In 2012 however the Supreme Court held that the mandate requiring the state expansion of Medicaid was unconstitutionally coercive 6 As a result of the Supreme Court decision it is now optional for states to decide whether or not to proceed with the expansion To induce states to sign on to the expansion the federal government agreed to pay 100 percent of hospital and other medical bills of the 33
JUNE O   NEILL  same period, spending on Medicaid increased as a share of NHE, from 10 percent of NHE to 15 percent. Measu...
MEDICAID S COST DRIVERS newly covered beneficiaries for a period of three years After that the federal payment is scheduled to drop to 90 percent For a detailed description of how the ACA will affect Medicaid in the states see chapter 5 page 65 It is difficult to predict the long run impact of the expansion on Medicaid costs For example if those who enter the program initially are adults who turn out to have expensive chronic conditions cost pressure might very well rise The states appear to be conflicted As of July 1 2013 24 states indicated that they are moving forward with the expansion 21 indicated that they are not moving forward and 6 said that debate in their state was ongoing 7 PROGR A M H ISTORY A N D DETA ILS Medicaid became law in 1965 under Title XIX of the Social Security Act The program was created to provide funds for medical services to low income groups In addition to income and asset limitations eligibility for federal funds was tied primarily to receipt of public welfare assistance in what was then Aid to Families with Dependent Children AFDC and to the low income elderly blind and disabled groups who receive Supplemental Security Income SSI Although AFDC in 1996 was replaced by Temporary Assistance for Needy Families TANF eligibility for Medicaid is still automatic for low income families with children who meet the requirements for AFDC as specified in 1996 Medicaid eligibility is also extended to those low income elderly and disabled who qualify for SSI Although federal law requires states to cover certain population groups and sets certain financial eligibility criteria states can apply for waivers to expand coverage beyond the specified groups A state can also cover certain groups without federal approval if it is willing to fully pay the costs of the group without federal assistance Within the federal guidelines each state establishes its own eligibility standards determines the amount and duration of services offered sets the rate of payment for services and generally administers its own program 34
MEDICAID   S COST DRIVERS  newly covered beneficiaries for a period of three years. After that, the federal payment is sch...
JUNE O NEILL States vary considerably with respect to the relative size of their low income populations and population characteristics such as the proportion with chronic problems that would allow classification as disabled Not surprisingly program participation and costs per enrollee differ considerably across the states Thus in FY2009 the average share of a state s population enrolled in Medicaid was 20 percent In California however 30 percent of residents were enrolled in Utah only 6 percent were enrolled The average Medicaid payment per beneficiary in the United States in 2009 was 5 527 The highest per capita payment was in Connecticut 9 577 the lowest in Georgia 3 979 8 Connecticut s high payment is attributable to a relatively large proportion of their beneficiary population qualifying for longterm care As Joseph Antos explains in chapter 1 the federal government pays a share of the expenditures in each state s Medicaid program That share known as the federal medical assistance percentage FMAP is determined annually by a formula based on the state s per capita income compared with the national average income The federal share is larger in states with lower per capita income The FMAP by law can be no lower than 50 percent or higher than 83 percent The historical average has been a 57 percent state share However the American Recovery and Reinvestment Act ARRA of 2009 enacted as part of an effort to stimulate recovery from the 2008 financial crisis gave states a temporary increase in their FMAPs of up to 14 percentage points depending on their unemployment rates The FMAP boost was in place from the first quarter of FY2009 through the first quarter of FY2011 Additional legislation continued the higher rates through the second and third quarters of 2011 but at lower levels In FY2013 the FMAP ranged from a low of 50 percent 12 states including New York New Jersey and California to a high of 73 4 percent in Mississippi The dramatic shifts in Medicaid funding during the recession are displayed in table 1 along with information on changes in annual growth rates in total health spending NHE as well as in other major sources of health care funding public and private For each spending 35
JUNE O   NEILL  States vary considerably with respect to the relative size of their low-income populations and population ...
MEDICAID S COST DRIVERS Table 1 Growth in National Health Expenditures NHE and in Selected Spending Sources Percentage Change from Previous Year calendar years 1990 2011 1990 NHE 2000 2007 2008 2009 2010 2011 3 9 3 9 3 9 11 0 6 6 6 2 4 7 Medicaid 11 0 10 5 6 3 5 8 8 8 5 9 2 5 Federal 11 4 10 6 6 7 9 6 21 9 7 7 7 1 State 10 4 10 4 5 7 0 7 10 0 2 5 22 2 Medicare 11 4 7 4 7 4 8 0 6 9 4 3 6 2 Private Health Insurance 13 0 7 0 5 0 3 9 3 2 3 4 3 8 Out of Pocket 9 0 3 8 5 3 2 4 0 1 2 1 2 8 GDP 5 8 6 4 4 9 1 9 2 2 3 9 4 0 Real GDP 1 9 4 1 1 9 0 3 3 1 2 4 1 9 Chained 2005 dollars Department of Commerce BEA Source NHE and the component health expenditures are from Centers for Medicare and Medicaid Services Office of the National Health Statistics Group source the table shows the percentage change in expenditures from the previous year As shown growth rates in health care spending had generally been high in 1990 when Medicaid expenditures increased at an annual rate of 11 percent the same as the growth rate in NHE By 2000 Medicaid growth was still at the high level of 1990 although spending was reduced in most other sources of health care funding But during the following decade the slowdown in GDP growth was reflected in lower spending on health care expenditures generally including Medicaid expenditures Thus Medicaid spending federal and state combined increased by 5 8 percent in 2008 from the previous year 9 With the advent of the recession federal spending accounted for most of that increase as the state share barely increased at all a rise of 0 3 percent Once the full impact of the recession hit in 2009 the annual percentage increase in total Medicaid expenditures rose to 8 8 percent more than double the rate of increase in NHE High unemployment 36
MEDICAID   S COST DRIVERS  Table 1. Growth in National Health Expenditures  NHE  and in Selected Spending Sources, Percent...
JUNE O NEILL led to additional enrollments and higher Medicaid costs At the same time states were financially stressed by plunging revenues related to the high unemployment As a consequence state Medicaid spending actually fell by 10 percent But as part of the recession stimulus effort the federal government came to the rescue with close to a 22 percent increase in federal funds which more than offset the collapse in state funding The funding of Medicaid differs considerably from that of Medicare in that it is almost entirely drawn from general revenues both state and federal whereas Medicare is substantially funded by dedicated revenue sources payroll taxes and beneficiary premiums Medicaid is therefore highly important in state budgets According to the National Association of State Budget Officers NASBO in FY2012 Medicaid accounted for 23 9 percent of all state government spending That percentage exceeded the spending share of all other programs including elementary and secondary school spending which accounted for 19 8 percent 10 For further details on the impact of Medicaid on federal and state budgets see chapters 3 and 4 pages 49 and 65 SOURCES OF RISING COSTS Since its inception in 1966 the spending trajectory of the Medicaid program has been upward although the rate of increase has varied sometimes considerably see figure 1 Medicaid expenditures are driven by growth both in enrollments of beneficiaries figure 2 and in the medical costs incurred by the beneficiaries Costs per beneficiary vary considerably with the characteristics of beneficiaries Those who are elderly or disabled incur much higher medical costs than children or nonelderly adults thus changes in the composition of beneficiaries have a significant effect on costs The economy influences the flow of beneficiaries particularly those in the child and nonelderly adult category because increases and decreases in employment affect income eligibility for the program e g family income for children own income for nonelderly single adults 37
JUNE O   NEILL  led to additional enrollments and higher Medicaid costs. At the same time, states were financially stresse...
MEDICAID S COST DRIVERS Table 2 Distribution of Medicaid Recipients and Medicaid Payments by Eligibility Group and Medicaid Payments per Person Served by Eligibility Group 1990 2000 2010 Share of Beneficiaries Share of Payments Per Person Served 1990 2000 2010 1990 2000 2010 1990 2000 2010 Children 44 7 46 1 48 4 14 0 15 9 19 9 1 642 1 853 2 129 Adult 23 8 20 5 23 9 13 2 10 6 12 8 2 893 2 771 3 102 Aged 13 7 8 7 6 6 33 2 26 4 19 4 13 597 16 282 15 339 Disabled 14 7 16 1 14 3 37 6 43 2 43 5 13 282 14 413 15 752 Other Unknown 3 1 8 6 6 8 2 0 3 9 4 4 Total 100 100 100 100 100 100 Constant 2010 dollars Source Data are from the Medicare and Medicaid Research Review 2012 Statistical Supplement Medicaid also at times has been affected by episodes such as the explosion in costs generated by the Medicaid disproportionate share hospital DSH program described below The relation between demographic characteristics per enrollee costs and total payments is shown in table 2 for the years 1990 2000 and 2010 Medicaid enrollees are usually identified as belonging to one of four major demographic groups children adult elderly and disabled Enrollees classified as adults in the Medicaid program are nondisabled and younger than age 65 As table 2 indicates Medicaid payments per capita differ considerably by characteristic In all years shown children and adults are the lowest cost recipients In 2010 Medicaid payments per beneficiary were 2 129 for children and 3 102 for the adult category By contrast payment per beneficiary was 15 339 for the elderly and 15 752 for the disabled The total number of beneficiaries increased from 25 million to 65 million between 1990 and 2010 a rise of 158 percent Changes in the demographic composition of beneficiaries did not play a major role in the increase in costs over that period The number of children beneficiaries increased as a percentage of the total and was the only one 38
MEDICAID   S COST DRIVERS  Table 2. Distribution of Medicaid Recipients and Medicaid Payments by Eligibility Group and Med...
JUNE O NEILL of the four groups to do so The increase however was modest Over the 20 year period the children s share of the beneficiary population grew from 45 percent to 48 percent But cost pressures did rise for the children group because per person costs increased more for children than the other groups a 30 percent rise in real dollars between 1990 and 2010 Children remained the lowest per capita payment group in 2010 although the combination of a small gain in beneficiary share and a significant increase in per person payments increased the children s share of total payments from 14 to 20 percent The adult group retained their share of about 24 percent of total beneficiaries They like children are a relatively low cost group In 2010 they accounted for a somewhat smaller share of total payments than was the case in 1990 Unlike the pattern for the other groups the Medicaid participation of the elderly declined significantly over the 20 year period falling from a share of 13 7 percent of total beneficiaries in 1990 to only 6 8 percent in 2010 The elderly are a high cost group but as their participation declined their share of total Medicaid payments fell from 33 percent in 1990 to 19 percent in 2010 Disabled beneficiaries are the other high cost group As shown in table 2 the per capita payments of the disabled are quite similar to those of the elderly But unlike the elderly the disabled have remained a fairly steady share of total beneficiaries at about 14 percent But because their per person payments are high and have been rising an increase of 18 5 percent in constant dollars between 1990 and 2010 their share of total Medicaid payments has increased from 38 percent in 1990 to 44 percent in 2010 the largest percentage share of any group Medicaid is often viewed as an important funding mechanism for long term medical care in nursing homes Nursing homes are not exclusively used by low income people Middle class individuals may enter nursing homes as paying residents But nursing home care is expensive and residents who exhaust their financial assets become dependent on Medicaid to pay the bills In 2010 the average payment per elderly Medicaid recipient for nursing home care was about 39
JUNE O   NEILL  of the four groups to do so. The increase, however, was modest. Over the 20-year period, the children   s ...
MEDICAID S COST DRIVERS 35 000 Only 2 4 percent of the total Medicaid population used nursing home facilities in 2010 But even among elderly recipients use of nursing facilities has declined significantly In 1990 39 5 percent of elderly Medicaid recipients were counted as users of nursing facilities by 2010 that percentage had fallen to 24 3 Nursing homes are the second most heavily used service by the elderly in Medicaid Prescribed drugs are the most heavily used 45 percent of elderly recipients receive drug benefits But the percentage receiving drug benefits has declined sharply as Medicaid recipients who are also Medicare recipients socalled dual eligibles have been shifted into Medicare Part D The pattern of nursing home usage in Medicaid is consistent with data released from the Bureau of the Census indicating that the percentage of Americans ages 75 and older living in nursing homes fell from 10 2 percent in 1990 to 5 7 percent in 2010 Among those ages 85 and older the percentage in nursing homes fell from 21 6 percent in 1985 to 11 6 percent in 2010 11 Assisted living arrangements and other community services that enable people to stay in the community are replacing nursing homes Such alternatives to nursing homes have become more viable because the income and wealth of the elderly have increased It is often assumed that the elderly play a significant role in rising health care costs because medical problems increase with age Although that is true it is also true that because of gains in medical science and technology many of the infirmities of old age have been alleviated by such procedures as knee and hip replacements which enable people to remain more self sufficient at advanced ages The older population today has increased its labor force participation and economic status Successive generations in the United States have become more educated and have attained higher earnings Recent studies find that the assets of the elderly have increased considerably over time 12 The increase in resources of the elderly helps explain the declining importance of this demographic in the Medicaid program Individuals with disabilities account for 14 percent of Medicaid recipients and that proportion has been relatively stable for many years 40
MEDICAID   S COST DRIVERS   35,000. Only 2.4 percent of the total Medicaid population used nursing home facilities in 2010...
JUNE O NEILL Many of the disabled who qualify for Medicaid also receive cash benefits from the SSI program In most states SSI eligibility automatically qualifies an individual for Medicaid In the other states applicants must demonstrate that they have an impairment that prevents them from working for at least one year In addition applicants must pass a review of assets and income before they qualify for Medicaid Included in the Medicaid disabled group are individuals with HIV AIDS for whom Medicaid is the single largest source of coverage Although the number of beneficiaries with HIV is growing coverage for this group still represents less than 3 percent of Medicaid spending 13 Medicaid data on the services used by the disabled indicate that provision of prescribed drugs and physician services are the most heavily used THE DSH EPISODE It is not surprising that in a program as large as Medicaid with two major sources of funding difficulties regarding cost control and instances of fraudulent practices would arise The most notorious example of the latter involves the Medicaid DSH program which in the early 1990s was responsible for several years of huge cost increases in federal Medicaid expenditures 14 The DSH program involves hospitals that serve a disproportionate number of low income and uninsured people and as a consequence have difficulty getting their bills paid In the early 1980s Congress attempted to alleviate the problem by mandating that states consider making special payments to disproportionate share hospitals Few states responded Congress then added the stipulation that the disproportionate share hospitals could bill the states using the higher reimbursement rates of Medicare To help states raise funds to reimburse the hospitals CMS at that time called the Health Care Financing Administration issued a rule that allowed states to receive donations from medical providers This was an attractive option for states when they ran out of funds during times of hardship they were unable to pay providers and therefore 41
JUNE O   NEILL  Many of the disabled who qualify for Medicaid also receive cash benefits from the SSI program. In most sta...
MEDICAID S COST DRIVERS could not apply for any federal matching money The donations rule enabled hospitals to make a donation to the state The state then pays the hospital with the donation money and that payment generates an expenditure that qualifies the state to obtain matching payments from the federal government The state gains the federal money even though little if any of the federal payment actually goes to the hospital The states embellished the idea by adopting provider tax programs that operated similar to the donations And the payments back to the hospitals were labeled as DSH payments With the donation and tax schemes the states were able to leverage the DSH payments into considerable state funds that partly helped the hospitals and partly could be used for other state purposes The period of peak DSH activity was 1990 92 In 1992 DSH spending accounted for significant amounts of spending in many states for example it accounted for 43 percent of Louisiana s spending 15 Medicaid spending in the federal budget escalated recording annual increases of as much as 30 percent in a single year The rapid rise of federal DSH payments did not go unnoticed Legislation to deal with the problem began in 1991 with the Medicaid Voluntary Contribution and Provider Specific Tax Amendments the legislation arose from an agreement between the administration of President George H W Bush and the National Governor s Association The agreement set caps on DSH payments limiting them to 12 percent of total Medicaid costs Provider donations were banned and provider taxes were restricted But the DSH problem was not fully resolved States soon developed a new means of raising money for their DSH programs Money within state budgets is frequently fungible and many states turned to intergovernmental transfers IGT to transfer money from one agency or level of government to another Thus some states transferred funds from public institutions such as state psychiatric facilities state university hospitals and other public hospitals city county to the state Medicaid agency The state could then make DSH payments to these public hospitals once again generating federal share payments By 1992 DSH accounted 42
MEDICAID   S COST DRIVERS  could not apply for any federal matching money. The donations rule enabled hospitals to make a ...
JUNE O NEILL for 15 4 percent of total Medicaid spending Accounts surfaced that DSH payments were not being used for their stated purpose but instead were retained by states for general state funding 16 Congress eventually cut back spending on the DSH program through provisions included in the 1993 Omnibus Budget Reconciliation Agreement and the Balanced Budget Act of 1997 DUA L ELIGIBLES On another front the federal government and states are facing the escalating costs of covering the group of elderly and disabled individuals who are jointly enrolled in Medicare and Medicaid Funding and eligibility for the two programs differs as does the provision of benefits People who are eligible for the two programs at the same time are called dual eligible beneficiaries Full duals are eligible for full benefits from both programs Partial duals qualify for Medicare but do not meet the eligibility requirement for all Medicaid benefits In 2009 dual eligibles made up 13 percent of the combined population of Medicare enrollees and elderly blind and disabled Medicaid enrollees But they accounted for 34 percent of the two programs total spending on those enrollees 17 CONCLU DI NG COM M EN TS The provision of health care in the United States is a patchwork Employer based coverage started during World War II as wage controls prevented firms from raising workers wages Fringe benefits most particularly health insurance were exempt from the controls It was believed that eventually most workers and their families would gain coverage through their employers As life expectancy rose concerns about the retired population led to the development of Medicare Medicaid was added to fill the gap for people who depended on public assistance and therefore lacked employer based insurance or Medicare 43
JUNE O   NEILL  for 15.4 percent of total Medicaid spending. Accounts surfaced that DSH payments were not being used for t...
MEDICAID S COST DRIVERS Medicaid now covers medical care for one fifth of the US population The expansion of Medicaid spurred by the ACA would further enlarge the program in those states that sign on to the expansion It is difficult to control costs and provide incentives for efficiency when jurisdiction and funding are shared Federal contributions to the states are difficult to direct and control because the payments are fungible The DSH problem arose for that reason If the federal payments for the ACA expansion are limited to direct payment of medical bills rather than contributions to the states to pay the bills the potential for cost escalation may be limited Medicaid is a unique program It is state administered involving 50 states each with different demographic characteristics and income levels The funding mechanism is complex because it is jointly funded by the federal government and the states with the federal government paying 57 percent of the total States have a blunted incentive to reduce spending because they lose federal money for every program dollar saved Medicaid is clearly a challenge to lawmakers who are responsible for the program One alternative that has been periodically considered as a way to provide medical care more efficiently to the low income population is the mechanism of block grants The welfare reform of the 1990s essentially converted the old AFDC program into block grants for funding and this has proven to be successful Presumably under a block grant Medicaid still would be required to meet appropriate standards of medical care The particular mode of administering services would be up to the states which would likely have different approaches tailored to the characteristics of their populations But the big difference would be that states would have to deal with a monetary ceiling on federal funds which presumably would spur cost containment 44
MEDICAID   S COST DRIVERS  Medicaid now covers medical care for one-fifth of the US population. The expansion of Medicaid,...
JUNE O NEILL NOTES 1 Some people are enrolled for only part of the year Taking that fact into account the Congressional Budget Office CBO estimates that enrollment over the course of FY2012 was 55 million expressed as full year equivalents 2 Donald M Berwick and Andrew D Hackbarth Eliminating Waste in US Health Care Journal of the American Medical Association 307 no 14 2012 1513 6 doi 10 1001 jama 2012 362 3 See the discussion of the DSH episode below 4 Patient Protection and Affordable Care Act Pub L No 111 148 124 Stat 119 2010 codified as amended sections of 42 U S C 5 The effective new income limit is 138 percent of the FPL since in addition to raising the income level to 133 percent 5 percent of income is disregarded 6 On June 28 2012 the US Supreme Court issued its decision in the case challenging the constitutionality of the ACA National Federation of Independent Business NFIB v Sebelius 132 S Ct 2566 7 These tabulations are from the Henry J Kaiser Family Foundation State Health Facts Status of State Action on Medicaid Expansion decision as of July 1 2013 8 The data on state enrollment and payment rates are from the Kaiser Commission on Medicaid and the Uninsured 9 Note that the percentage change for all years shown is the percentage change from the previous year 10 For data on state spending see Summary NASBO Report on State Expenditures December 20 2012 11 Data for 2010 are reported in US Census Bureau 2010 Census Summary File 1 Data for 1990 were reported in a US Census Bureau Census 2000 Special tabulation and 1990 Census of Population Report nursing home population 1990 CPH L 1371 A special census report of September 27 2007 also noted the decline in nursing home use among the elderly that was reported widely in the Wall Street Journal USA Today and other news briefs 12 See for example Bricker Kennickell Moore and Sabelhaus Changing U S Family Finances from 2007 to 2010 Evidence from the Survey of Consumer Finances Federal Reserve Bulletin 2012 They find striking change in the age distribution of net worth The most recent data show that the age group 75 years of age and older now has the highest median net worth 13 See Henry J Kaiser Family Foundation Medicaid and HIV AIDS March 5 2013 14 For further discussion of the DSH program see Theresa A Coughlin and David Liska The Medicaid Disproportionate Share Hospital Payment Program Background and Issues Series A No A 14 Urban Institute October 1997 15 Ibid 16 L Se Ku and T A Coughlin Medicaid Disproportionate Share and Other Special Financing Programs Health Care Financing Review 16 no 3 1995 17 See Congressional Budget Office Dual Eligible Beneficiaries of Medicare and Medicaid Characteristics Health Care Spending and Evolving Policies Congressional Budget Office June 2013 45
JUNE O   NEILL  NOTES 1.   Some people are enrolled for only part of the year. Taking that fact into account, the Congress...
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PART 2 MEDICAID S BUDGETARY IMPACT
PART 2   MEDICAID   S BUDGETARY IMPACT
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CHAPTER 3 THE FEDER AL SIDE OF THE BUDGET EQUATION JASON J FICHTNER O ften called an afterthought to the Medicare program Medicaid was signed into law under Title XIX of the Social Security Act Unlike Medicare which was created to provide health care coverage to those over the age of 65 Medicaid s intent was the provision of care for individuals of any age whose incomes were limited In 1966 Medicaid provided health insurance to 10 million beneficiaries 1 Currently with approximately 57 million people enrolled and about 69 million people enrolled at some point during 2013 Medicaid has evolved into the largest health insurance provider in the United States 2 Federal Medicaid costs are expected to increase dramatically The Congressional Budget Office CBO estimates that by 2024 20 million new people will be added to Medicaid and the Children s Health Insurance Program under the Patient Protection and Affordable Care Act ACA 3 an increase of nearly 30 percent 4 Further according to CBO federal spending on Medicaid is already projected to rapidly increase under the ACA rising from 265 billion in fiscal year FY 2013 to 574 billion in FY2024 5 As will be discussed later in the chapter 49
CHAPTER 3   THE FEDER AL SIDE OF THE BUDGET EQUATION JASON J. FICHTNER  O  ften called an afterthought to the Medicare pro...
THE FEDERAL SIDE OF THE BUDGET EQUATION any estimate of the federal government s future cost obligations are also dependent on how many states and which states choose to expand their state Medicaid program Also of financial concern at the time of writing this chapter early indications in implementation of the ACA show that many more people than previously estimated are logging onto healthcare gov and signing up for Medicaid possibly expanding Medicaid participation and costs beyond their original estimates 6 W H AT IS MEDICA ID Medicaid is a government health insurance program providing coverage to individuals who are limited in their ability to financially afford medical care 7 The program is run by each individual state with major funding assistance from federal cost sharing dollars Though state participation in Medicaid is voluntary all 50 states and the District of Columbia participate Each state using federal matching funds establishes and administers its own Medicaid program As long as a state follows federal guidelines it has the flexibility to determine the type and scope of services provided 8 Additionally each state has the option of charging enrollees premiums and establishing out ofpocket spending requirements such as copayments coinsurance and deductibles Although Medicaid eligibility varies dramatically from state to state in order to qualify for federal funding each state must provide coverage to limited income families with children as well as individuals who are elderly blind or disabled see the percentage breakdown in figure 1 9 See chapter 2 page 37 for an explanation of the demographic changes of Medicaid beneficiaries over time Though states impose their own income thresholds an individual or family applying for Medicaid cannot exceed a certain income threshold which is calculated in relation to a percentage of the federal poverty level FPL Today the FPL ranges from 11 490 for a family of one to 39 630 for a family of eight 10 For example consider a pregnant woman comprising a family of one and fitting categorically into 50
THE FEDERAL SIDE OF THE BUDGET EQUATION  any estimate of the federal government   s future cost obligations are also depen...
JASON J FICHTNER Figure 1 FY2013 Medicaid Enrollees Adult 24 Child 50 Aged 9 Disabled 17 Source Centers for Medicare Medicaid Services CMS Financial Report Fiscal Year 2013 Baltimore MD Department of Health Human Services 2013 http www cms gov Research Statistics Data and Systems Statistics Trends and Reports CFOReport Downloads 2013_CMS_Financial_Report pdf one of Medicaid s mandatory eligibility groups In 2013 the median Medicaid threshold across 50 states and the District of Columbia for this individual was 185 percent of the FPL 11 This would make her eligible for Medicaid if she earned less than 21 257 It is important to note that states may offer a greater number and additional types of services above and beyond what is mandated by the Department of Health and Human Services HHS Through Section 1115 of the Social Security Act the federal government has encouraged states to tailor the Medicaid program to their unique political and economic environments 12 Building on Section 1115 the Health Insurance Flexibility and Accountability HIFA demonstration initiative gives states enhanced waiver flexibility to streamline benefits packages create public private partnerships and increase cost sharing for optional and expansion populations covered under Medicaid 13 Contingent on approval by the HHS secretary state leaders are empowered to develop a unique program that meets the needs of their individual state 14 Because of the federal matching formula how each state determines and ultimately designs its state Medicaid program directly impacts the federal government s spending on Medicaid 51
JASON J. FICHTNER  Figure 1. FY2013 Medicaid Enrollees Adult,     24        Child,     50       Aged,     9        Disable...
States are required to cover acute health services including hospital and physician services laboratory and imaging services nursing facility and home health care and family planning services Most states offer optional services including prescription drugs dental care durable medical equipment and personal care services Medicaid is also an entitlement program Individuals who are eligible for Medicaid have a legal right to payment for sTHE FEDERAL SIDE nder the program States also have a legal right to federal matching ervices offered u OF THE BUDGET EQUATION payments for the services provided to eligible individuals Congress can change federal payment obligations to state MMEDICA ID IS F Uchanging program rules including eligibility HOW edicaid programs only by N DED requirements and covered services This budget treatment leaves Medicaid on automatic pilot less As Antos explains in chapter 1 page 9 Medicaid is a matching grant likely to be in the legislative mix when federal deficits must be reduced program jointly funded by federal and state governments To deter The federal government shares iofthe cost that the federal or their Medicaid benefits The federal mine the share n Medicaid states incur f government will pay in each medical assistance percentage FMAP for medical services which determines the percentage state the HHS calculates the federal medical assistance federal payment is tied to state per capita income according to the following formula FMAP 15 FMAP 100 State per capita income 0 45 US per capita income The law also provides that no state can have a match rate lower than 50 percent or higher than 83 Instituted in 1965 the FMAP formula ensures that the federal govpercent of the cost of benefits xii If the match rate is 50 percent the federal government and the state share equally ernment paysedicaid services If the match rate is 60 percent in statespays 40 percent in the cost of M a higher proportion of Medicaid costs the state where the averagegincome per capitaest of the cost and the federal overnment pays the r is lower relative to the national aver age Using income data averaged over three years the HHS provides Because the FMAP is a percentage payment rather than a fixed dollar amount it is a countercyclical an updated FMAP value every fiscal year between October 1 and program that automatically accounts for economic downturns or other state specific circumstances November 30 For purposes of this formula income represents such as increasing cost or use of services that drive up Medicaid spending Federal payments keep pace personal income as calculated by the Bureau he formula The FMAP is a with higher program costs without the need for legislation to adjust tof Economic Analysislso designed to einstead of money income asccalculated provide CensuseBureau To connable states with different fiscal apacities to by the roughly quivalent benefits trol the amount ork o by either the although that does not always wpaidut in practice federal or state government thresh old limits bind the FMAP between 50 and 83 percent 16 FMAPs as of In 2013 Mississippi received the highest regular match equal to 73 4 percent while 14 high income FY2013 are shown in table 1 states including New York and California received a 50 percent match The calculation is complicated by adjustments for states that experienced a major disaster such as the 2010 oil spill in Louisiana and increases to the matching percentage required under the ACA for states expanding Medicaid eligibility THE PATIEN T PROTECTION A N D The 50 percent minimum match rate provides ACTfunding to high income states than they would A FFOR DA BLE CA R E more otherwise receive according to the FMAP formula The FMAP for those states would fall as low as 23 In an attempt to increase the number of Medicaid recipients the ACA percent if not for the 50 percent floor xiii However it is doubtful that Medicaid could have been enacted as t was originally written created a new category of individuals return into law without ithe FMAP floor which ensured high income states a politically acceptable eli on gible for Medicaid he program the high taxes they pay to maintain tWithout noting the specific caveats this category extended coverage to all individuals whose incomes fell below 133 per Higher income states have more generous Medicaid programs than low income states partly as a cent of the FPL accounting for a 5 percent federal income exclusion consequence of their richer economic base that enables them to draw down a greater share of federal this threshold effectively increases to 138 percent of the FPL who were not previously eligible for Medicaid 17 Based on an estimate from 3 the Centers for Medicare and Medicaid Services CMS this coverage expansion was estimated to increase total projected Medicaid enrollment by 14 9 million people in 2014 and 25 9 million people by 2020 18 52
States     are     required     to     cover     acute     health     services,     including     hospital     and     phy...
JASON J FICHTNER Table 1 Federal Medical Assistance Percentages FY2013 State FMAP State FMAP State FMAP Alabama 68 53 Kentucky 70 55 North Dakota 52 27 Alaska 50 00 Louisiana 61 24 Ohio 63 58 Arizona 65 68 Maine 62 57 Oklahoma 64 00 Arkansas 70 71 Maryland 50 00 Oregon 62 44 California 50 00 Massachusetts 50 00 Pennsylvania 54 28 Colorado 50 00 Michigan 66 39 Rhode Island 51 26 Connecticut 50 00 Minnesota 50 00 South Carolina 70 43 Delaware 55 67 Mississippi 73 43 South Dakota 56 19 District of Columbia 70 00 Missouri 61 37 Tennessee 66 13 Florida 58 08 Montana 66 00 Texas 59 30 Georgia 65 56 Nebraska 55 76 Utah 69 61 Hawaii 51 86 Nevada 59 74 Vermont 56 04 Idaho 71 00 New Hampshire 50 00 Virginia 50 00 Illinois 50 00 New Jersey 50 00 Washington 50 00 Indiana 67 16 New Mexico 69 07 West Virginia 72 04 Iowa 59 59 New York 50 00 Wisconsin 59 74 Kansas 56 51 North Carolina 65 51 Wyoming 50 00 The values for the District of Columbia in the table were set for the state plan under Titles XIX and XXI and for capitation payments and disproportionate share hospital allotments under those titles For other purposes the percentage for the District of Columbia is 50 00 unless otherwise specified by law Source 76 Fed Reg 74061 74063 Nov 30 2011 Under current law the HHS secretary is permitted to withhold federal funding if a state fails to comply with the minimum benefit and eligibility requirements established by the federal government Originally the ACA stipulated that states that failed to expand their Medicaid coverage would be considered noncompliant In its review of the ACA s constitutionality the Supreme Court held that the Medicaid expansion clause in the ACA was unconstitutionally coercive 19 Chief Justice John Roberts s opinion held that the mandatory expansion of Medicaid coupled with the HHS secretary s authority to withhold funding for noncompliance is a gun to the head because 53
JASON J. FICHTNER  Table 1. Federal Medical Assistance Percentages, FY2013 State  FMAP      State  FMAP      State  FMAP  ...
THE FEDERAL SIDE OF THE BUDGET EQUATION the threatened loss of 10 percent of a State s overall budget is economic dragooning that leaves the States with no real option but to acquiesce 20 To allow the provisions set forth in the ACA to remain intact while providing a remedy for the coercion inherent in the act the Supreme Court precluded the HHS secretary s ability to withhold existing Medicaid funds for failing to comply with the Medicaid expansion requirements leaving only the incentive of increased funding to encourage states to expand Medicaid eligibility 21 For newly eligible individuals the federal government will pay 100 percent of the costs for the first three years Starting in 2017 the percentage paid is supposed to decrease and ultimately settle at 90 percent in 2020 22 MEDICA ID A N D THE COST IM PLICATIONS OF THE ACA The Supreme Court s ruling effectively relegates the choice to expand Medicaid to the states Hence any estimate of the federal government s future cost obligations now necessarily depend on how many states and which states choose to expand their Medicaid program From a state s perspective the decision to expand coverage depends on two competing values Charles Blahous a public trustee for Social Security and Medicare recently analyzed the incentives facing states under the ACA He finds that a state governor faces an incentive to maximize the health benefits his own state s citizens receive that are financed by entities outside of the state while also minimizing his state s budgetary exposure 23 He elaborates on the ACA s impact on state budgets in chapter 5 page 86 The decision to expand coverage is complex for state policymakers Though the federal government agreed to cover a significant portion of associated expenses in order to influence states to expand Medicaid each state must project how the Medicaid expansion will affect its current and future budgets Considering Medicaid represented less than 3 percent of total state and local expenditures in 1967 whereas in FY2012 it represents an estimated 24 percent of total expenditures 54
THE FEDERAL SIDE OF THE BUDGET EQUATION  the    threatened loss of 10 percent of a State   s overall budget is economic dr...
JASON J FICHTNER Figure 2 Projected Medicaid Expenditures 1 000 900 Total Federal and State Medicaid Expenditures Billions 800 700 600 500 400 300 200 100 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Note Projections assume universal participation Source Centers for Medicare Medicaid Services National Health Expenditure Data 2013 it is unlikely expenditures will decrease in the foreseeable future 24 The trend is clearly visible in figure 2 Further this is an important point to summarize and repeat Medicaid expansion under the ACA allows a state to pass most of the cost along to taxpayers in other states but only if it passes some costs along to its own taxpayers as well Based on preliminary estimates from CMS Medicaid expenditures per year are expected to increase by approximately 500 billion between 2012 and 2021 roughly a 108 percent increase 25 See figure 3 It is important to note that CMS assumes universal expansion of the Medicaid program to include the ACA intended beneficiary group Even if one argues that it is incorrect to assume universal participation the issue of increasing Medicaid expenditures has plagued the health insurance program since its inception The amount of money spent on Medicaid continues to represent a significant portion of total health care expenditures in the United States The problems associated with Medicaid expenditures are further evidenced in figures 3 and 4 Adjusting for inflation the amount of money spent on Medicaid has significantly increased since the program was first adopted For FY2013 Medicaid represented roughly 24 percent of state budgets 55
JASON J. FICHTNER  Figure 2. Projected Medicaid Expenditures       1,000                 900            Total     Federal ...
THE FEDERAL SIDE OF THE BUDGET EQUATION Figure 3 Medicaid Expenditures as a Percentage of Total US Health Care Expenditures 25 2012 2021 Projected 1966 2011 Actual Percent of Total Health Care Expenditures 20 15 10 5 0 1966 1971 1976 1981 1986 Federal 1991 1996 State and Local 2001 2006 2011 2016 2021 Projected Source Centers for Medicare Medicaid Services National Health Expenditure Data 2012 Figure 4 Historical Federal and State Medicaid Spending 450 400 Medicaid Spending Billions 2012 s 350 300 250 200 150 100 50 1966 1971 1976 1981 Federal 1986 1991 1996 2001 2006 2011 State and Local Source Centers for Medicare Medicaid Services National Health Expenditure Data 2012 Some may argue that this increase can be solely attributed to rising health care costs but research shows that it can be primarily attributed to changing demographics increased access and eligibility service expansions and waste 26 Regardless of the cause Medicaid continues to become a larger share of state budgets See figure 5 56
THE FEDERAL SIDE OF THE BUDGET EQUATION  Figure 3. Medicaid Expenditures as a Percentage of Total US Health Care Expenditu...
JASON J FICHTNER Figure 5 Medicaid Expenditures as a Share of Total State Budgets Medicaid 24 All Other 38 Transportation 8 Education 30 Source National Association of State Budget Officers Fiscal Survey of States 2013 To reflect the likelihood that not every state in the country will expand Medicaid eligibility the CBO released a revised report in June 2012 with updated cost estimates Although the revised estimate suggests that the total Medicaid outlays between 2012 and 2022 will be approximately 289 billion less than originally planned it projected that federal government exchange subsidies and related spending will increase by 209 billion 27 This revised estimate warrants further clarification To this point this report has focused solely on the expansion of the Medicaid program Though no state is required to expand eligibility every state must have a health insurance exchange exchange In its simplest form an exchange is an online marketplace where qualified individuals and small businesses can purchase health insurance The exchange is supposed to help facilitate the purchase of health insurance by allowing individuals and businesses to compare benefits and prices of different plans In implementing the exchanges each state has the option to either establish and operate its own exchange assuming approval by the HHS secretary engage in a partnership 57
JASON J. FICHTNER  Figure 5. Medicaid Expenditures as a Share of Total State Budgets  Medicaid, 24   All Other, 38  Transp...
THE FEDERAL SIDE OF THE BUDGET EQUATION with the federal government or opt for a complete federally established and facilitated exchange 28 Though numerous stipulations exist an applicant in the exchange may be eligible for federal subsidies to help pay for an insurance policy offered through the exchange To be considered for such subsidies an applicant must not be eligible for minimum essential coverage except through the individual health insurance market or an employer sponsored plan that is either deemed unaffordable or does not provide an ACA mandated minimum value The applicant s income must fall between 100 and 400 percent of the FPL 29 Minimum essential coverage is defined as coverage under the following 1 a government sponsored plan 2 an employer sponsored plan 3 plans in the individual market 4 grandfathered health plans 5 or any other health benefits coverage recognized by the HHS secretary 30 It is important to highlight the threshold established by the ACA because it creates a new incentive for state governments The ACA effectively created a new beneficiary group characterized by individuals who were previously ineligible for Medicaid and whose income fell below 133 percent of the FPL For states that opt to expand coverage Blahous s research suggests coverage will be expanded only for individuals making below 100 percent of the FPL 31 For a state governor who values maximizing externally financed health benefits while minimizing exposure to the state s budget this type of expansion would allow citizens to experience higher quality health care at no additional cost to the state 32 Unfortunately this incentive is likely to have a significant impact on the federal government s budget Assuming that the HHS secretary allows partial expansion CBO s revised estimates suggest that exchange insurance subsidies and other related spending are expected to cost 1 2 trillion between 2014 and 2024 with costs starting to gradually increase in 2014 33 58
THE FEDERAL SIDE OF THE BUDGET EQUATION  with the federal government, or opt for a complete federally established and faci...
JASON J FICHTNER U NCERTA I N T Y SU R ROU N DI NG GROW TH I N HEA LTH CA R E COSTS Whether the recent decline in the growth rate of health care costs is a permanent trend or an aberration that will abate is the subject of much current debate see figure 6 Further how an aging US population interacts with economic growth wealth poverty retirement security and the growth rate of health care costs will all directly affect the cost of providing Medicaid coverage For example if a higher percentage of an increasingly older society becomes poorer because of slower economic growth lack of savings for retirement etc and turns to Medicaid for health coverage this would in general increase the federal budget outlays for Medicaid If coupled with a higher thanestimated growth in medical costs then the impact on federal spending for Medicaid would be even greater President Obama s Council of Economic Advisers released a report near the end of 2013 suggesting that the ACA was responsible for the recent reduction in health care cost growth and will ultimately reduce health care costs 34 This claim was quickly disputed by several health care experts For example in the context of national health expenditures NHE Blahous found that the ACA would increase national health expenditures through 2016 35 Also James Capretta a health care official with the Office of Management and Budget from 2001 to 2004 noted that the slowdown in health care costs did not start with passage of the ACA but rather In 2002 NHE spending per capita rose 8 5 percent and then began to slow over the ensuring years In 2008 NHE spending per capita rose just 3 7 percent two years before Obamacare was enacted Further Capretta notes that the CMS actuaries estimate the ACA s Medicaid expansion and new subsidies for insurance offered in the exchanges will greatly increase the demand for health services and soaring demand always increases prices and costs 36 Although the academic debate continues regarding the true causes of the recent slowdown in health care costs and whether the trend will continue or reverse it is hard to envision a situation whereby creating a major expansion in the number of people eligible for Medicaid does 59
JASON J. FICHTNER  U NCERTA I N T Y SU R ROU N DI NG GROW TH I N HEA LTH CA R E COSTS  Whether the recent decline in the g...
THE FEDERAL SIDE OF THE BUDGET EQUATION Figure 6 Real Per Capita Growth in National Health Expenditures Data note Figures for 2012 and 2013 are projections Source Centers for Medicare and Medicaid Services Census Bureau Office of Management and Budget Produced by Jason Fichtner Mercatus Center at George Mason University not also lead to an increase in the total dollars spent on Medicaid whether purely because of an increase in the number of people now demanding health care or coupled with an increase in the cost of providing health care What seems certain as outlined in this chapter is that the growth in the federal cost of Medicaid is very likely to continue unabated without significant and meaningful reforms that reduce the number of people covered reduce the health care services covered or shift more of the cost onto the private sector and individuals CONCLUSION Given that the ACA is still in its infancy and regulatory and legislative changes may occur in the near future to address problems with its initial rollout and implementation it is nonetheless imperative to consider how the ACA will significantly further negatively impact federal budgets and affect the economy at large To emphasize this point consider figure 7 60
THE FEDERAL SIDE OF THE BUDGET EQUATION  Figure 6. Real Per Capita Growth in National Health Expenditures  Data note  Figu...
JASON J FICHTNER Figure 7 Health Expenditures as a Percentage of Gross Domestic Product Source Congressional Budget Office The 2012 Long Term Budget Outlook 2012 Examining the data between 2000 and 2036 it is clear that the two largest government health care programs in the country are slowly beginning to represent a larger share of gross domestic product GDP With noninterest spending at 22 percent of GDP it is clear that government health care spending is at unprecedented levels With or without Medicaid eligibility expansion Medicaid is on a trajectory to require increasing resources at state and federal levels of government creating difficult budgetary tradeoffs for both unless major and significant reforms to Medicaid are implemented These reforms will be covered in the chapters that follow NOTES 1 J K Iglehart The Dilemma of Medicaid New England Journal of Medicine 348 no 21 2003 2140 8 Centers for Medicare Medicaid Services CMS Financial Report Fiscal Year 2010 Baltimore MD Department of Health Human Services 2010 http www cms gov Research Statistics Data and Systems Statistics Trends and Reports CFOReport downloads 2010_CMS_Financial_Report pdf 2 Centers for Medicare Medicaid Services CMS Financial Report Fiscal Year 2012 Baltimore MD Department of Health Human Services 2012 http www cms gov Research Statistics Data and Systems Statistics Trends and Reports CFOReport Downloads 2012_CMS_Financial_Report pdf 61
JASON J. FICHTNER  Figure 7. Health Expenditures as a Percentage of Gross Domestic Product  Source  Congressional Budget O...
THE FEDERAL SIDE OF THE BUDGET EQUATION 3 Patient Protection and Affordable Care Act Pub L No 111 148 124 Stat 119 2010 codified as amended sections of 42 U S C 4 See CBO s Analysis of the Major Health Care Legislation Enacted in March 2010 Before the Subcommittee on Health Committee on Energy and Commerce US House of Representatives 112th Cong 2011 statement of Douglas W Elmendorf Director of the Congressional Budget Office http www cbo gov sites default files cbofiles ftpdocs 121xx doc12119 03 30 healthcarelegislation pdf and Congressional Budget Office The Budget and Economic Outlook 2014 to 2024 February 4 2014 http cbo gov publication 45010 5 See Congressional Budget Office The Budget and Economic Outlook 6 See Jennifer Haberkorn Medicaid Enrollment Surges Ahead of ACA Sign Ups Politico October 29 2013 http www politico com story 2013 10 medicaid enrollment surges ahead of aca sign ups 98977 html 7 Eligibility Medicaid gov Centers for Medicare Medicaid Services accessed November 19 2013 http www medicaid gov Medicaid CHIP Program Information By Topics Eligibility Eligibility html 8 State Medicaid CHIP Policies for 2014 Medicaid gov Centers for Medicare Medicaid Services accessed November 19 2013 http www medicaid gov Medicaid CHIP Program Information By State By State html 9 Eligibility Medicaid gov 10 78 Fed Reg 5182 3 January 24 2013 11 Martha Heberlein et al Getting into Gear for 2014 Findings from a 50 State Survey of Eligibility Enrollment Renewal and Cost Sharing Policies in Medicaid and CHIP 2012 2013 Washington DC Kaiser Commission on Medicaid and the Uninsured Henry J Kaiser Family Foundation January 2013 http kff org medicaid report getting into gear for 2014 findings from a 50 state survey of eligibility enrollment renewal and cost sharing policies in medicaid and chip 2012 2013 12 Gretchen Engquist and Peter Burns Health Insurance Flexibility and Accountability Initiative Opportunities and Issues for the States State Coverage Initiatives 3 no 2 2002 1 6 13 Ibid 14 Waivers Medicaid gov Centers for Medicare Medicaid Services accessed November 19 2013 http www medicaid gov Medicaid CHIP Program Information By Topics Waivers Waivers html 15 Kathryn Linehan The Basics Medicaid Financing Washington DC National Health Policy Forum George Washington University February 13 2013 http www nhpf org library the basics Basics_MedicaidFinancing_02 13 13 pdf 16 Ibid 17 National Conference of State Legislatures The Affordable Care Act A Brief Summary March 2011 Centers for Medicare Medicaid Services CMS Financial Report Fiscal Year 2011 Baltimore MD Department of Health Human Services 2011 http www cms gov Research Statistics Data and Systems Statistics Trends and Reports CFOReport downloads 2011_CMS_Financial_Report pdf 18 Ibid 19 MaryBeth Musumeci A Guide to the Supreme Court s Affordable Care Act Decision 62
THE FEDERAL SIDE OF THE BUDGET EQUATION  3.   Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 1...
JASON J FICHTNER publication 8332 Henry J Kaiser Family Foundation Menlo Park CA July 2012 http kff org health reform issue brief a guide to the supreme courts affordable 20 National Federation of Independent Business v Sebelius 567 U S ____ 51 2012 21 Ibid 22 Linehan The Basics 23 Charles Blahous The Affordable Care Act s Optional Medicaid Expansion Considerations Facing State Governments Mercatus Research Mercatus Center at George Mason University Arlington VA March 5 2013 20 http mercatus org publication affordable care acts optional medicaid expansion considerations facing state governments 24 National Association of State Budget Officers The Fiscal Survey of States 2012 2012 US Department of Commerce Statistical Abstract of the United States 90th ed 1969 25 Centers for Medicare and Medicaid Services CMS Financial Report Fiscal Year 2013 Baltimore MD Department of Health Human Services 2013 http www cms gov Research Statistics Data and Systems Statistics Trends and Reports CFOReport Downloads 2013_CMS_Financial_Report pdf 26 Scott Beaulier and Brandon Pizzola The Political Economy of Medicaid Evidence from Five Reforming States Mercatus on Policy Mercatus Center at George Mason University Arlington VA April 2012 27 Congressional Budget Office Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision 2012 28 Bernadette Fernandez and Annie L Mach Health Insurance Exchanges under the Patient Protection and Affordable Care Act ACA R42663 Washington DC Congressional Research Service 2013 29 Ibid 30 Annie L Mach M Scales and J Mulvey Individual Mandate and Related Information Requirements under ACA R41331 Washington DC Congressional Research Service July 22 2013 31 Blahous The Affordable Care Act s Optional Medicaid Expansion 32 Ibid 33 Congressional Budget Office Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision and The Budget and Economic Outlook 2014 to 2024 34 Executive Office of the President Council of Economic Advisers Trends in Health Care Cost Growth and the Role of the Affordable Care Act November 2013 35 Charles Blahous No Grounds for Claim That Obamacare Lowers Healthcare Costs November 25 2013 e21 http www economics21 org commentary no grounds claim obamacare lowers healthcare costs 36 James Capretta Another Broken Promise Obamacare Is Driving Costs Up Not Down Weekly Standard November 26 2013 http www aei org article health healthcare reform ppaca another broken promise obamacare is driving costs up not down 63
JASON J. FICHTNER   publication  8332, Henry J. Kaiser Family Foundation, Menlo Park, CA, July 2012 , http   kff.org healt...
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CHAPTER 4 THE STATE SIDE OF THE BUDGET EQUATION NINA OWCHARENKO M edicaid consumes a significant portion of state budgets Taking into account significant federal contributions Medicaid is the single largest budget item in most state budgets surpassing elementary and secondary education In 2012 24 percent of state budgets went to Medicaid Medicaid spending is expected to climb in the future due to increased enrollment including Medicaid expansion in the Patient Protection and Affordable Care Act ACA 1 and increased costs of providing medical services in general To control spending states typically use a variety of techniques including adjusting reimbursement rates for providers restricting eligibility and enrollment limiting benefits and services and adopting care management tools such as managed care Some states have also recommended more structural financing changes such as block grants as a means to better control costs over the long term However just as states are looking to control costs many are also pursuing eligibility and benefit expansions See chapter 1 page 9 for an explanation of the incentives that states face to maximize their federal Medicaid funds while controlling their own costs 65
CHAPTER 4   THE STATE SIDE OF THE BUDGET EQUATION NINA OWCHARENKO  M  edicaid consumes a significant portion of state budg...
THE STATE SIDE OF THE BUDGET EQUATION The current federal state funding structure creates conflicting incentives that perpetuate these fiscal challenges Efforts to influence the financing at the federal and state level will likely continue without reform HOW IS THE PROGR A M F U N DED The federal government pays a share of Medicaid costs and the states are responsible for the remaining share The federal share is calculated by the federal medical assistance percentage FMAP formula and adjusted annually In general this percentage is determined based on each state s personal income versus the national average income 2 States also receive enhanced federal funds for serving specific populations such as Native Americans and Alaskans They also receive enhanced federal funding for providing certain services such as family planning and for opting to extend eligibility or services to nonmandatory groups 3 And administrative costs which account for about 5 percent of Medicaid spending are funded separately and typically matched at a 50 percent rate by the federal government but with exceptions as well 4 In response to the economic downturn the American Recovery and Reinvestment Act of 2009 provided a temporary increase in the federal match rate to states from October 2008 to June 2011 The average federal share of Medicaid spending in 2010 increased to a high of 67 percent leaving the average state share at a low of 33 percent 5 In 2012 when the additional federal funds expired the average federal share dropped back to its historic average of 57 percent increasing the average state share to 43 percent Most recently the ACA provides an enhanced federal match to cover costs for expanding coverage to childless adults earning up to 138 percent of the federal poverty level States will receive a 100 percent federal match rate for this expansion group in 2014 2015 and 2016 and then the federal share will gradually phase down to 90 66
THE STATE SIDE OF THE BUDGET EQUATION  The current federal   state funding structure creates conflicting incentives that p...
NINA OWCHARENKO percent by 2020 However this enhanced match is only for the newly eligible population States will continue to receive the standard federal matching rates for currently eligible populations including those previously eligible but not enrolled By 2020 combining both enhanced and standard rates the average federal share of Medicaid spending is projected to be 60 percent leaving states with 40 percent on average 6 The ACA also increased the federal matching rate for primary care providers in Medicaid by raising payment rates for this group of physicians to Medicare level rates This enhanced federal match is temporary and is scheduled to expire at the end of 2014 7 Counterintuitively total Medicaid spending is typically highest in wealthier states with a 50 percent match As American Enterprise Institute scholar Robert Helms points out Even though wealthier states have lower matching rates they have expanded their programs to a greater extent than the states that typically have higher proportions of poor people 8 W H AT PERCEN TAGE OF STATE BU DGETS GO TOWA R D MEDICA ID In terms of total state expenditures Medicaid represents the single largest item in state budgets Medicaid represented 22 2 percent of spending across all states in FY2010 23 7 in FY2011 and an estimated 23 9 percent in FY2012 9 To compare spending for elementary and secondary education was 20 4 percent in FY2010 20 2 percent in FY2011 and estimated 19 8 percent in FY2012 10 It is worth noting however that these total state expenditures take into account federal contributions Federal grants to Medicaid represented 62 7 percent of total state Medicaid spending in FY2011 while state general fund spending represented 26 9 percent 11 By comparison federal grants represented only 21 0 percent of total elementary and secondary education expenditures in FY2011 while state general fund expenditures represented 66 5 percent 12 See figure 1 67
NINA OWCHARENKO  percent by 2020. However, this enhanced match is only for the newly eligible population. States will cont...
THE STATE SIDE OF THE BUDGET EQUATION Total State Expenditures for Elementary and Secondary Educa and Medicaid right bandund Source Figure 1 Total State Expenditures for Medicaid by Fund Source Fiscal 2011 State Expenditures for Elementary y F Secondary Education left and Medicaid right ear 2011 Source Fiscal Year 2011 Fiscal Y by Funding Other State Funds 11 3 Bonds 1 1 Federal Funds 21 0 Other State Funds 10 4 General Fund 26 9 General Fund 66 5 Educa on 20 2 335 2 billion Federal Funds 62 7 Medicaid 23 7 393 8 billion Source Na onal Associa on of State B State Expenditure Report Examining 2010 2012 State Spending Source National Association of State Budget Officers State Expenditure Report Examining Fiscal 2010 2012BState Spending Source Na onal Associa on of State udget O cers State Expenditure Report Examining Fiscal 2010 2012 State Spending STATE SPEN DING BY EN ROLLEE GROU P A N D SERV ICE State Medicaid spending varies by state for many reasons including eligibility benefits and cost of care States are required to provide care to certain mandatory populations and for certain mandatory services 13 But beyond these designations states are permitted to extend their Medicaid programs to serve certain optional populations and provide certain optional services Furthermore states have the latitude to administer their programs differently in other ways such as determining provider reimbursement levels Because of such variations no two Medicaid programs are alike at the state level According to the Henry J Kaiser Family Foundation national per enrollee spending in FY2009 was 5 527 14 The highest per enrollee spending by state was 9 577 in Connecticut 9 143 in the District of Columbia and 8 960 in New York The lowest per enrollee spending by state was 3 527 in California 3 979 in Georgia and 4 081 in Alabama By group 65 percent of national Medicaid spending in FY2009 went to the elderly and disabled while the remaining 35 percent was 68
THE STATE SIDE OF THE BUDGET EQUATION  Total     State     Expenditures     for     Elementary     and     Secondary      ...
NINA OWCHARENKO spent on adults and children 15 State level spending on the elderly and disabled ranged from a high of 77 percent in the District of Columbia to 76 percent in North Dakota and New Jersey and a low of 51 percent in Delaware 54 percent in Alaska and 55 percent in Georgia State level spending on working aged adults and children ranged from a high of 59 percent in Arizona and New Mexico and 49 percent in Delaware and a low of 24 percent in New Jersey and North Dakota and 27 percent in West Virginia and Pennsylvania By services 65 6 percent of national Medicaid spending in FY2011 was on acute care services and 30 2 percent on long term care services 16 State level spending on acute care ranged from a high of 91 9 percent in Hawaii 88 9 percent in New Mexico and 88 3 percent in Vermont to a low of 37 6 percent in North Dakota 45 4 percent in New Hampshire and 50 percent in Connecticut State level spending on long term care ranged from a high of 62 1 percent in North Dakota and 46 7 percent in Connecticut and Wyoming to a low of 6 9 percent in Hawaii 8 9 percent in Vermont and 10 3 percent in New Mexico W H AT A R E THE STATE MEDICA ID SPEN DING TR AJ ECTOR IES While year to year spending fluctuates the long term spending trend in Medicaid remains on an upward trajectory In 1990 combined federal and state spending on Medicaid was 72 2 billion with the state share at 31 3 billion and a total enrollment of 22 9 million 17 By 2000 total Medicaid spending increased to 206 2 billion with the state share at 89 2 billion and enrollment at 34 5 million In 2010 total Medicaid spending reached 401 5 billion with the state share at 131 7 billion and total enrollment estimated to be 53 7 million See figure 2 The Government Accountability Office s GAO s state and local fiscal outlook report warns of the following The primary driver of fiscal challenges for the state and local government sector in the long term continues to be the projected growth in health related costs 69
NINA OWCHARENKO  spent on adults and children.15 State-level spending on the elderly and disabled ranged from a high of 77...
THE STATE SIDE OF THE BUDGET EQUATION Figure 2 Total Medicaid Spending and State Medicaid Spending Historical Total Medicaid Spending and State Medicaid Spending Historical and Projected and Projected 900 800 Billions of US 700 600 500 Total Expenditures State Expenditures 300 200 2018 2020 2016 2014 2012 2008 2010 2006 2004 2002 1998 2000 1996 1994 1992 1988 1990 1986 1984 1982 1978 1980 1976 1974 1972 1968 1970 0 1966 100 Total Expenditures State Expenditures 70 2020 2018 2016 2014 2012 2010 2008 2006 2004 2002 1998 Specifically state and local expenditures on Medicaid and the cost of health care compensation for state and local government employees and retirees are projected to grow more than GDP 18 In FY2011 Medicaid spending represented 2 8 percent of GDP and is expected to reach 3 2 percent of GDP by FY2021 19 In its 2008 report before the enactment of the ACA the Centers for Medicare and Medicaid Services Office of the Actuary projected that combined federal and state spending on Medicaid would reach 673 7 billion in FY2017 with the state share at 290 3 billion and total enrollment reaching 55 1 million 20 After enactment of the ACA the Actuary s 2011 report projected that total Medicaid spending would reach 871 1 billion in 2020 with the state share reaching 340 0 billion and enrollment topping 85 million 21 But predicting future spending is always tentative and the Supreme Court decision in National Federation of Independent Business v Sebelius which overturned a key ACA Medicaid provision underscores that uncertainty The Supreme Court decision clarified that 2000 1996 1994 1992 1988 1990 1986 Source Centers for Medicare and Medicaid Services 2012 Actuarial Report on the Financial Outlook for Medicaid 1984 1982 Spending and State Medicaid Spending Historical 400 and Projected
THE STATE SIDE OF THE BUDGET EQUATION  Figure 2. Total Medicaid Spending and State Medicaid Spending, Historical Total    ...
NINA OWCHARENKO states that chose not to expand their Medicaid program to childless adults would lose only the enhanced funding for the expansion population not all federal funding for Medicaid 22 The 2012 Centers for Medicare and Medicaid Services Office of the Actuary report adjusted its projections based on the Supreme Court decision and now estimates that Medicaid expenditures will increase at an average annual rate of 6 4 percent By 2020 total spending is now projected to be 746 2 billion with the state share of these expenditures expected to be 296 8 billion and enrollment at 77 4 million 23 TR EN DI NG U PWA R D H IGH ER EN ROLLM EN T A N D H IGHER MEDICA L COSTS The projected spending increases in Medicaid are a result of both rising enrollment and increasing medical costs Even before millions of childless adults are added to the program existing demographic challenges are substantial in Medicaid For example Medicare beneficiaries also enrolled in Medicaid made up 15 percent of enrollment while consuming 38 percent of Medicaid spending in 2009 24 According to GAO The increase in the number of people 85 or older in the next 10 years is expected to have a major effect on long term care spending for Medicaid As such a key driver of federal spending for both Medicare and Medicaid is the aging population Enrollment from this population did not change as a result of the PPACA 25 The Actuary s report estimates enrollment is expected to jump from 55 7 million in FY2011 to 77 9 million in 2021 Enrollment of the low income elderly is projected to reach 6 5 million and that of the disabled to reach 10 2 million Enrollment of children is projected to reach 31 7 million while enrollment of previously eligible adults is expected to reach 15 9 million In addition 12 6 million of newly eligible adults are projected to enroll 26 The Actuary s report also points out the following Although much of Medicaid s expenditure growth past and future is due to expansion of eligibility criteria the per 71
NINA OWCHARENKO  states that chose not to expand their Medicaid program to childless adults would lose only the enhanced f...
THE STATE SIDE OF THE BUDGET EQUATION Figure 3 2011 and 2021 Per Enrollee Expenditures by Category 2011 and 2021 Per Enrollee Expenditures by Category 30 000 00 Expenditures 25 000 00 20 000 00 15 000 00 10 000 00 5 000 00 e ol le ts ul Av er ag e Pe r le E nr A d ul ly El igi b Ne w ly El igi b le A d Ad N ew Ch ild re n of 2011 2021 ts ts ul re n ild Ch Bl in d Di sa b le Ag ed d Source Centers for Medicare and Medicaid Services 2012 Actuarial Report on the Financial Outlook for Medicaid enrollee costs for Medicaid have also usually increased significantly faster than per capita GDP 27 According to the projections total Medicaid spending per beneficiary will also rise to an average of 9 532 by FY2021 compared with 6 982 in FY2011 28 Average spending per disabled person will rise to 27 647 by FY2021 average spending per elderly individual will rise to 22 446 average spending per child will rise to 4 389 average spending on previously eligible adults will rise to 6 939 and spending will average 4 684 for newly eligible adults See figure 3 STATE EFFORTS TO CON TROL MEDICA ID COSTS A N D SPEN DING Faced with higher spending states as administrators of this joint federal state program play a significant role in determining Medicaid costs and spending Most recently the Actuary s report points out the following Following the expiration of temporary 72
THE STATE SIDE OF THE BUDGET EQUATION  Figure 3. 2011 and 2021 Per Enrollee Expenditures, by Category  2011     and     20...
NINA OWCHARENKO increases in the Federal matching rate the States share of Medicaid expenditures have grown rapidly over the last 2 years nearly 40 percent and the States have acted to reduce provider payment rates and or optional benefits Their actions had a substantial impact in 2012 and emphasize the difficulty in balancing Medicaid against other government programs in the context of States budgets 29 States focus their efforts to control costs through a variety of policy initiatives The Henry J Kaiser Family Foundation s 50 State Annual Medicaid Budget Survey offers an overview of such state budget actions It found that 43 states implemented at least one cost containment measure in FY2013 and the same number plan to do so in FY2014 30 At the same time 46 states reported implementing a program improvement in FY2013 and 47 states expect to in FY2014 Provider rates One of the most common tools used by states to control Medicaid costs is to adjust payment rates for health care providers serving Medicaid patients Thirty nine states implemented some rate restrictions on providers in FY2013 and 34 states adopted restrictions for FY2014 31 Hospitals and nursing homes were most targeted Of course one consequence of provider cuts is that fewer providers will participate in the program Today physicians are less willing to accept new Medicaid patients 32 The access issue will be increasingly important as millions of new patients are expected to join the program as a result of the ACA Possibly because of these challenges the Kaiser survey found that 40 states increased certain provider rates in FY2013 and 44 adopted increases for FY2014 33 As noted earlier the ACA does provide additional federal dollars to states to increase payment rates for primary care physicians in order to meet Medicare levels This boost in federal funding however is temporary and it remains unclear whether states will resume lower reimbursement rates once these federal funds expire at the end of 2014 Eligibility and enrollment States have also considered limiting eligibility and enrollment to control Medicaid growth Policies such as scaling back eligible populations to lower income levels and freezing or capping enrollment for some groups have been initiated by some 73
NINA OWCHARENKO  increases in the Federal matching rate, the States    share of Medicaid expenditures have grown rapidly o...
THE STATE SIDE OF THE BUDGET EQUATION states However such changes have been more limited than in previous years According to the Annual Medicaid Budget Survey 5 states scaled back eligibility for adults in FY2013 34 whereas in FY2006 for example 18 states adopted eligibility restrictions 35 Some of this change is likely a result of the maintenance of effort MOE requirement in the American Recovery and Reinvestment Act of 2009 which prohibited states from implementing policy changes that would restrict eligibility or enrollment as a condition of receiving the additional federal funding 36 Some is a likely result of the overall push of the ACA to expand not restrict eligibility and enrollment In fact the Kaiser survey found 45 states reported adopting enrollment expansions or enhancements such as streamlining application and renewal processes for FY2014 37 Benefits Adjusting benefits and benefit designs are other cost control tools used by the states These changes can focus on eliminating or limiting a type of benefit or service For example in FY2013 14 states adopted some level of benefit restrictions 38 Of those 5 states reported eliminating at least one benefit all together 39 Pharmaceutical benefits are another area that states target for cost control According to the Henry J Kaiser Family Foundation survey 24 states issued some cost containment measures to manage pharmaceutical costs for FY2013 and 25 adopted new policies for FY2014 40 Policies range from preferred drug lists to supplemental rebates to limiting the number of allowable prescriptions States also use premiums and cost sharing to manage costs The Deficit Reduction Act of 2005 provided additional leeway for states to require enrollees at various income levels to participate in costsharing arrangements whether premiums or copays In FY2013 39 states reported premium requirements for some group in Medicaid 41 Care management States are looking to control costs by more effectively coordinating and managing care delivery for Medicaid enrollees Most notable is the shift toward Medicaid managed care States are able to control costs by capping reimbursement to private insurers According to the Medicaid and CHIP Payment and Access 74
THE STATE SIDE OF THE BUDGET EQUATION  states. However, such changes have been more limited than in previous years. Accord...
NINA OWCHARENKO Commission In 1995 15 percent of Medicaid enrollees were enrolled in such an arrangement By 2011 half of all Medicaid enrollees were enrolled in a comprehensive risk based plan 42 States are also looking to adopt policies focused on the most costly enrollees the disabled and the elderly Only 24 percent of enrollees are elderly or disabled but they represent 64 percent of total Medicaid spending According to the Congressional Research Service longterm care services account for more than one third of all Medicaid spending 43 Increasingly states are focused on adopting policies to better coordinate care and costs for these long term care services Other cost containment efforts In the past some states cost containment strategies looked beyond their existing scope of authority and turned to federal waivers44 to experiment with larger budget strategies Vermont and Rhode Island are two notable examples 45 Both states negotiated an agreement with the federal government to accept capped federal funding over a period of time with some policy changes The concept behind these initiatives was to demonstrate that states could keep spending below the federal cap if given additional tools to manage the program Along these same lines there is growing interest in the states to advance block grant concepts for Medicaid The Republican Governors Association sent a letter in support of the FY2012 House budget proposal that included a Medicaid block grant structure 46 See chapter 7 page 138 for more information on the mechanics of block grants It could be argued that not opting for the ACA Medicaid expansion is also a form of cost containment Analysis shows the long term cost implications of the Medicaid expansion may outweigh any temporary short term benefit 47 W H AT INCEN TI V ES DO STATES FACE GI V EN FEDER A L F U N DING FOR M U L AS The open ended nature of the Medicaid funding structure and the joint federal state partnership creates perverse incentives at both the 75
NINA OWCHARENKO  Commission     In 1995, 15 percent of Medicaid enrollees were enrolled in such an arrangement. By 2011, h...
THE STATE SIDE OF THE BUDGET EQUATION state and federal levels States are driven to leverage as many federal dollars as possible and the federal government uses its funding power to persuade states to adopt certain policies For every dollar a state puts in the federal government matches one for one and sometimes provides even more 48 As noted the federal grants are a key component of the state budgets Unfortunately this leads states to spend funds on Medicaid they otherwise would not have The ACA is a good example Total Medicaid spending is expected to increase by 13 percent in FY2014 for states opting for the new ACA Medicaid expansion and its enhanced federal funding compared with 6 8 percent in states opting not to expand 49 Thus states opting for the expansion are fueling overall Medicaid spending The incentive to maximize and leverage unlimited federal dollars has led states to develop financing schemes such as provider taxes where states tax Medicaid providers in order to gain the federal match and then repay these providers with Medicaid reimbursement 50 Although these provider tax techniques are under greater scrutiny states use of them continues to grow According to the Kaiser survey At the beginning of FY 2003 a total of 32 states had at least one provider tax in place By FY 2013 all but one state Alaska has one or more provider taxes in place 51 Federal Medicaid funding policies also create perverse incentives for the states to adopt certain federal policies such as expanding coverage services and benefits This is most evident in the use of the enhanced match rate under the ACA to entice states to extend Medicaid eligibility to the childless adult population 52 Another example is CHIP which uses enhanced federal Medicaid match rates to coerce states into agreeing to expand coverage to children above the normal Medicaid eligibility levels Other examples include enhanced federal match rates for family planning services certain long term care initiatives and for the adoption of health information technologies 53 76
THE STATE SIDE OF THE BUDGET EQUATION  state and federal levels. States are driven to leverage as many federal dollars as ...
NINA OWCHARENKO CONCLUSION The fiscal challenges facing Medicaid are real As the GAO report on the state and local fiscal outlook found The state and local government sector continues to face near term and long term fiscal challenges which add to the nation s overall fiscal challenges 54 Such warnings suggest that policy changes at the federal and state levels will be needed to address the long term viability of the program In the meantime it is likely that the pressure to control Medicaid spending will continue to fall on the states which in turn will push states to continue to explore new ways to address the fiscal challenges in Medicaid NOTES 1 Patient Protection and Affordable Care Act Pub L No 111 148 124 Stat 119 2010 codified as amended sections of 42 U S C 2 See Joseph Antos s more detailed explanation in chapter 1 3 Henry J Kaiser Family Foundation Medicaid Financing An Overview of the Federal Medicaid Match Rate September 2012 7 http www kaiserfamilyfoundation files wordpress com 2013 01 8352 pdf 4 Ibid 9 5 Office of the Actuary Centers for Medicare and Medicaid Services US Department of Health and Human Services 2012 Actuarial Report on the Financial Outlook for Medicaid March 2013 22 http www medicaid gov Medicaid CHIP Program Information By Topics Financing and Reimbursement Downloads medicaid actuarial report 2012 pdf 6 Office of the Actuary 2012 Actuarial Report on the Financial Outlook for Medicaid 22 7 Health Care and Education Reconciliation Act of 2010 Pub L No 111 152 1202 enacted March 30 2010 This law made several changes to the underlying Patient Protection and Affordable Care Act of 2010 Pub L No 111 148 enacted March 23 2010 8 Robert Helms Medicaid The Forgotten Issue in Health Reform American Enterprise Institute Outlook No 14 November 2009 2 http www aei org files 2009 11 06 14 HPO Helms g pdf 9 National Association of State Budget Officers State Expenditure Report 2012 9 http www nasbo org sites default files State 20Expenditure 20Report_1 pdf 10 Ibid 11 Ibid 45 12 Ibid 14 13 For a discussion of the mandatory and optional populations and services see Henry J 77
NINA OWCHARENKO  CONCLUSION  The fiscal challenges facing Medicaid are real. As the GAO report on the state and local fisc...
THE STATE SIDE OF THE BUDGET EQUATION Kaiser Family Foundation Medicaid An Overview of Spending on Mandatory vs Optional Populations and Services June 2005 http kaiserfamilyfoundation files wordpress com 2013 01 medicaid an overview of spending on pdf 14 Henry J Kaiser Family Foundation Medicaid A Primer March 2013 43 http kaiserfamilyfoundation files wordpress com 2010 06 7334 05 pdf 15 Ibid 42 16 Ibid 44 17 Office of the Actuary 2012 Actuarial Report 22 18 US General Accountability Office State and Local Governments Fiscal Outlook April 2013 5 http www gao gov assets 660 654255 pdf 19 Office of the Actuary 2012 Actuarial Report 49 50 20 Office of the Actuary Centers for Medicare and Medicaid Services US Department of Health and Human Services 2008 Actuarial Report on the Financial Outlook for Medicaid October 2008 16 18 http medicaid gov Medicaid CHIP Program Information By Topics Financing and Reimbursement Downloads medicaid actuarial report 2008 pdf 21 Office of the Actuary Centers for Medicare and Medicaid Services US Department of Health and Human Services 2011 Actuarial Report on the Financial Outlook for Medicaid March 16 2012 19 http medicaid gov Medicaid CHIP Program Information By Topics Financing and Reimbursement Downloads medicaid actuarial report 2011 pdf 22 For a discussion of the new options see Charles Blahous The Affordable Care Act s Optional Medicaid Expansion Considerations Facing State Governments Mercatus Center at George Mason University March 5 2013 http mercatus org sites default files Blahous_MedicaidExpansion_v1 pdf 23 Office of the Actuary 2012 Actuarial Report 22 24 Kaiser Family Foundation Medicaid A Primer 10 25 US Government Accountability Office Patient Protection and Affordable Care Act Effect on Long Term Federal Budget Outlook Largely Depends on Whether Cost Containment Sustained January 2013 24 http www gao gov assets 660 651702 pdf 26 Office of the Actuary 2012 Actuarial Report figure 4 28 27 Ibid i 28 Ibid figure 5 30 29 Ibid i 30 Vernon Smith et al Medicaid in a Historic Time of Transition Results from a 50 State Medicaid Budget Survey for State Fiscal Years 2013 and 2014 Henry J Kaiser Family Foundation October 7 2013 86 87 http kaiserfamilyfoundation files wordpress com 2013 10 8498 medicaid in a historic time4 pdf 31 Ibid 47 32 Sandra L Decker In 2011 Nearly One Third of Physicians Said They Would Not Accept New Medicaid Patients But Rising Fees May Help Health Affairs 31 no 8 2012 1673 79 33 Ibid 78
THE STATE SIDE OF THE BUDGET EQUATION  Kaiser Family Foundation,    Medicaid  An Overview of Spending on    Mandatory    v...
NINA OWCHARENKO 34 Smith et al Medicaid in a Historic Time of Transition 25 35 Vernon Smith et al Low Medicaid Spending Growth amid Rebounding State Revenues Results from a 50 State Medicaid Budget Survey State Fiscal Years 2006 and 2007 Henry J Kaiser Family Foundation October 2006 25 http kaiserfamilyfoundation files wordpress com 2013 01 7569 pdf 36 The Affordable Care Act extended these restrictions until 2014 for adults and 2019 for children 37 Smith et al Medicaid in a Historic Time of Transformation 4 38 Ibid 54 39 Ibid 40 Ibid 55 41 Ibid 51 42 Medicaid and CHIP Payment and Access Commission Medicaid Managed Care MACFacts April 2013 https sites google com a macpac gov macpac publications MACFacts ManagedCare_2013 04 pdf attredirects 1 43 Kirsten J Colello Medicaid Coverage of Long Term Services and Supports Congressional Research Service December 5 2013 1 http www fas org sgp crs misc R43328 pdf 44 See James Capretta chapter 7 in this publication Reforming Medicaid 45 Robert Wood Johnson Foundation Rhode Island Pursues Health Reforms in Public and Private Sectors State Coverage Initiatives February 18 2009 http www statecoverage org node 1343 46 Sarah Kliff and J Lester Feder GOP Governors Want Medicaid Block Grants Politico February 28 2011 http www politico com news stories 0211 50288 html 47 Blahous The Affordable Care Act s Optional Medicaid Expansion 48 For a discussion on the FMAP Multiplier see Henry J Kaiser Family Foundation Medicaid Financing An Overview of the Federal Medicaid Match Rate 4 49 Smith et al Medicaid in a Historic Time of Transition 19 50 Ralph Lindeman Medicaid Faces Possible Funding Cuts Health Law Implementation Challenges Daily Report for Executives Bureau of National Affairs January 16 2013 51 Smith et al Medicaid in a Historic Time of Transition 50 52 Carter C Price and Christine Eibner For States That Opt out of Medicaid Expansion 3 6 Million Fewer Insured and 8 4 Billion Less in Federal Payments Health Affairs 32 no 6 2013 1030 36 For an opposing view see Edmund Haislmaier and Drew Gonshorowski State Lawmaker s Guide to Evaluating Medicaid Expansion Projections Issue Brief No 3720 Heritage Foundation September 7 2012 http www heritage org research reports 2012 09 state lawmakers guide to evaluating medicaid expansion projections 53 Henry J Kaiser Family Foundation Medicaid Financing 54 US General Accountability Office State and Local Governments Fiscal Outlook 1 79
NINA OWCHARENKO  34.  Smith et al.,    Medicaid in a Historic Time of Transition,    25. 35.  Vernon Smith et al.,    Low ...
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PART 3 THE AFFORDABLE CARE ACT AND MEDICAID
PART 3   THE AFFORDABLE CARE ACT AND MEDICAID
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CHAPTER 5 MEDICAID UNDER THE AFFORDABLE CARE ACT CHARLES P BL AHOUS T he 2010 passage of the Patient Protection and Affordable Care Act PPACA more commonly referred to as the Affordable Care Act ACA 1 vastly increased projected Medicaid costs One of the core objectives of the ACA was to expand considerably the ranks of Americans with health insurance coverage with Medicaid serving as the primary vehicle for covering the previously uninsured poor The ACA s expansion of Medicaid coverage will cause Medicaid costs to increase significantly with these increases concentrated on the federal share of total Medicaid expenditures The ACA dramatically expanded the numbers of those eligible for Medicaid coverage by mandating that participating states offer coverage to all childless adults with incomes below 133 percent of the federal poverty level FPL The income eligibility threshold was effectively set at 138 percent of FPL by another statutory provision that established a 5 percent income exclusion 2 The federal government attempted to cushion the financial blow that this dramatic coverage expansion would embody for the states by financing with federal funds 100 percent of Medicaid costs for the 83
CHAPTER 5   MEDICAID UNDER THE AFFORDABLE CARE ACT CHARLES P. BL AHOUS  T  he 2010 passage of the Patient Protection and A...
MEDICAID UNDER THE AFFORDABLE CARE ACT newly eligible population in the first three years of 2014 16 a percentage that will gradually decline to 90 percent by the year 2020 Medicaid is a joint federal state program in which state participation is technically voluntarily the federal government cannot constitutionally force states to participate though all states do But at the same time the federal government through the auspices of the secretary of Health and Human Services HHS has the statutory power to deny federal Medicaid funding to a state if the secretary determines that it is not in compliance with federal Medicaid law s benefit and eligibility requirements 3 With the ACA having expanded Medicaid s mandatory coverage standards the federal government essentially gave itself the power to deny Medicaid funding to any state that did not fully participate in the expansion The only alternative to full expansion left to the states per the language of the ACA was the politically implausible one of ending their participation in Medicaid altogether This dynamic was changed significantly by the US Supreme Court s June 2012 ruling on the constitutionality of the ACA The court upheld most of the ACA s provisions most notably its requirement that individuals carry health insurance or be subject to a new federal tax 4 But in the same ruling the court struck down the federal government s ability to enforce its mandated Medicaid expansion by withholding existing Medicaid funds from states that declined to comply By eliminating the federal government s power to enforce it the court s action effectively made the ACA s Medicaid expansion optional for the states The court s decision changed estimates of the projected cost of the ACA and in particular of its Medicaid expansion provisions Prior to the decision it was generally assumed that all states would participate in the expansion Afterward because of the conflicting incentives facing states in the wake of the court ruling as well as policy decisions announced by many state governments around the nation it became clear that some states would not participate in the Medicaid expansion 5 But until all states have announced and implemented their decisions Medicaid expansion participation levels can only be very roughly estimated The Congressional Budget Office s CBO s latest 84
MEDICAID UNDER THE AFFORDABLE CARE ACT  newly eligible population in the first three years of 2014   16, a percentage that...
CHARLES P BLAHOUS Projected Federal Medicaid Costs Figure 1 Projected Federal Medicaid Costs With and Without ACA Medicaid Expansion With and Without ACA Medicaid Expansion Based on CBO Assump ons Re State Par cipa on 600 Billions 500 400 300 200 100 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 With Medicaid Expansion Without Medicaid Expansion Note Cost projections are based on CBO assumptions regarding state participation Sources Congressional Budget Office CBO s May 2013 Estimate of the Effects of the Affordable Care Act on Health Insurance Coverage table 2 May 2013 Congressional Budget Office Medicaid Spending and Enrollment Detail for CBO s May 2013 Baseline May 2013 estimates are that two thirds of potentially newly eligible individuals reside in states that will voluntarily participate in the ACA expansion resulting in a total Medicaid coverage increase of 13 million by 2021 on top of a baseline estimate of 34 million projected in the absence of the ACA 6 This expansion would in turn add 87 billion annually to federal Medicaid and Children s Health Insurance Program CHIP outlays by 2021 bringing total federal Medicaid expenditures in that year to 493 billion 7 In effect CBO anticipates that the ACA s Medicaid expansion even if only partially implemented by the states will add more than 21 percent to annual federal Medicaid costs by 2021 These cost increases will be added to federal Medicaid costs that were already projected to rise substantially even before the ACA s Medicaid expansion was enacted as shown in figure 1 CBO s projections are similar to those made by other federal estimators including the Chief Actuary of the Centers for Medicare and 85
CHARLES P. BLAHOUS  Projected     Federal     Medicaid     Costs,           Figure 1. Projected Federal Medicaid Costs, Wi...
MEDICAID UNDER THE AFFORDABLE CARE ACT Medicaid Services CMS In its 2012 actuarial report the Office of the Chief Actuary estimated that federal Medicaid costs will reach 478 billion annually by 2021 8 This is based on an assumption that in 2014 55 percent of the potentially newly Medicaid eligible population will reside in states that choose to expand a percentage rising to 65 percent in 2015 and thereafter This participation assumption is just slightly lower than the two thirds assumption on which CBO had based its estimates after the 2012 Supreme Court decision 9 The CMS projections also reveal how Medicaid costs would rise still more dramatically if all states were to participate in the full Medicaid expansion envisioned in the ACA The CMS baseline estimate of 478 billion of federal Medicaid costs in 2021 translates to a total Medicaid cost of roughly 795 billion in that year federal financing being 60 percent of the total CMS projects that if all states participate in the ACA s Medicaid expansion total program costs will rise still further in that year to roughly 831 billion 10 It is widely acknowledged that federal Medicaid costs are on an unsustainable trajectory even apart from the issue of the ACA s Medicaid expansion 11 Along with Medicare and Social Security the new health coverage obligations arising under the ACA embody the main categories of federal spending projected to grow over the long term at rates faster than the federal tax base can sustain 12 Accordingly every recent and significant bipartisan discussion of how to best address the federal budget deficit has prompted proposals to reduce the rate of growth of federal Medicaid expenditures The amount of savings envisioned in these various budget proposals varies significantly but all reflect a shared bipartisan understanding that projected federal Medicaid cost growth will need to be scaled back EFFECTS OF MEDICA ID EX PA NSION ON STATE BU DGETS The 2012 Supreme Court decision left states with the voluntary option of considerably expanding their Medicaid rolls to cover all childless 86
MEDICAID UNDER THE AFFORDABLE CARE ACT  Medicaid Services  CMS . In its 2012 actuarial report, the Office of the Chief Act...
CHARLES P BLAHOUS adults with incomes effectively up to 138 percent of the FPL In effect the Medicaid expansion is an opportunity for states to significantly expand health benefits for their own citizens while passing the vast majority of the bill to federal taxpayers who mostly reside in other states But at the same time states will themselves face substantial additional costs if they choose to expand The expansion decision arrives at a time when state budgets are already under severe strain as a result of the recent recession as well as the mounting costs arising under Medicaid to date Total statefinanced Medicaid expenditures rose from roughly 31 billion in 1990 to roughly 157 billion in 2011 even though the federal share of total Medicaid costs had risen over the same period from 57 percent to 63 percent 13 A survey of state budgets showed that already by 2011 state financed Medicaid expenditures accounted for nearly 24 percent of state budgets 14 The fact that the federal government picked up 63 percent of total Medicaid costs in 2011 is significant for state decision making going forward The percentage of total Medicaid costs financed from federal funds in that year was kept artificially high and thus statefinanced expenditures held artificially low as a result of temporary assistance provided to states through the 2009 federal stimulus law In 2009 2010 and 2011 effective federal financing assistance percentages averaged 65 percent 67 percent and 63 percent respectively each annual percentage being substantially higher than the long term average of 57 percent As a result even states that participate in the ACA s Medicaid expansion must actually finance a higher share of total Medicaid expenditures in the future than they did during the 2009 11 period despite the generous federal financing assistance percentages promised under the ACA as reflected in figure 2 15 Partially as a result of the expiration of temporary stimulus assistance and partially as a result of rising caseload and general health care cost inflation states face substantial Medicaid cost increases irrespective of their decisions about whether to expand Medicaid per 87
CHARLES P. BLAHOUS  adults with incomes effectively up to 138 percent of the FPL. In effect, the Medicaid expansion is an ...
Post ACA States Are Projected to Finance Higher Percentages of Total Medicaid Expenditures MEDICAID UNDER THE AFFORDABLE CARE ACT Compared to the 2009 11 S3mulus Period Figure 2 State Share of Total Medicaid Expenses Compared to the 2009 11 Stimulus Period State Share of Total Medicaid Expenses 44 Percentage 42 40 38 36 34 32 30 Source Office of the Actuary Centers for Medicare and Medicaid Services 2012 Report on the Financial Outlook for Medicaid 2012 table 3 the terms of the ACA Some estimates find that expansion would further increase state Medicaid costs by only roughly 3 percent but this modest incremental increase would still create additional fiscal pressure at a particularly inopportune moment for states 16 Current CMS estimates are that total state Medicaid costs will rise by 125 percent from 2010 to 2020 based on updated assumptions for partial state participation in the ACA s Medicaid expansion 17 Even by Medicaid standards this is an extremely rapid rate of cost growth representing a substantial acceleration in state financed costs relative to the 2000 10 period 18 Some advocates of expansion have argued that the ACA s generous promises of federal support for Medicaid expansion combined with the fact that states currently face substantial costs for the treatment of the uninsured together mean that states could actually save money by choosing to expand Medicaid Although reducing the cost of treating the uninsured is an important factor to weigh as states contemplate Medicaid expansion the available data do not appear to support the suggestion of net cost savings On average states should 88
Post-     ACA,     States     Are     Projected     to     Finance           Higher     Percentages     of     Total     M...
CHARLES P BLAHOUS expect their total expenditures to rise significantly if they expand Medicaid A Henry J Kaiser Foundation study found that roughly 33 percent of the cost of treating the uninsured is uncompensated with these costs in turn distributed between entities that include the federal government as well as state governments 19 Taken together the data suggest that roughly 10 6 percent of the total cost of treating the uninsured is financed by state governments Taking into account the phenomenon under which individuals with insurance tend to purchase more health care services than those without states on average would need to face no more than 8 percent of the cost of covering the newly Medicaid insured in order to come out ahead fiscally 20 In other words an effective FMAP federal medical assistance percentage rate of 92 percent for the entire coverage expansion population would be required to allow expansion to be a fiscal gain for the states on average Under the terms of the ACA the federal government is promising to fund 90 percent of the cost of covering the newly eligible population from 2020 onward This however substantially overstates the share of expansion costs that the federal government will actually pay due largely to a phenomenon known as the woodwork effect The woodwork effect is so called because it is expected that many people who were already eligible for Medicaid but had not previously signed up will emerge out of the woodwork to claim Medicaid benefits as coverage is expanded This expectation is based in part on the ACA s outreach processes under which previously eligible individuals are to be enrolled in Medicaid if they attempt to sign up for the ACA s new health exchanges 21 The ACA s imposition of a tax on those without health insurance is also expected to increase Medicaid enrollment among the eligible population CBO estimates that roughly one third of those with incomes below the FPL who receive Medicaid coverage under the ACA will be individuals who were eligible under prior law 22 Importantly previously eligible individuals would not trigger federal support at the generous financing assistance rates of the ACA but rather at the lower levels that existed in pre ACA law On average the 89
CHARLES P. BLAHOUS  expect their total expenditures to rise significantly if they expand Medicaid. A Henry J. Kaiser Found...
MEDICAID UNDER THE AFFORDABLE CARE ACT federal government has paid 57 percent of the cost of Medicaid coverage for those previously eligible Putting all these numbers together it should be expected that over the long term states will need to shoulder roughly 21 percent of the cost of financing expanded Medicaid coverage for those in poverty This is substantially more than the estimated break even level of 8 percent The 21 percent figure is a rough average estimate of states share of the added financing burden Percentage financing burdens would vary significantly by state States that historically have had higher uninsured percentages among those with incomes below the FPL such as Texas Nevada and Montana would likely experience proportional cost increases that are higher than this average 23 As states confront this decision they must also factor in the previously mentioned consensus that the growth of federal Medicaid expenditures will need to be slowed At this time no person can state with certainty how much federal Medicaid expenditures will be reduced from current schedules nor how much of these costs will be passed to states rather than embodying absolute reductions in the growth of total Medicaid costs It would be unrealistic however for states to assume in their fiscal planning that federal expenditure schedules will be unchanging going forward INTER ACTIONS BET W EEN PROV ISIONS OF THE ACA The particulars of the 2012 Supreme Court decision created unintended interactions between various provisions of the ACA producing what appears to be a common incentive now facing all states specifically to decline to cover childless adults with incomes above the FPL under Medicaid This common incentive is an unintended consequence of the legislation s course first through Congress and later through the Supreme Court 24 By original design the ACA was intended to dramatically expand health coverage by a variety of methods Individuals were to be subjected to a federal tax or penalty if they did not carry health 90
MEDICAID UNDER THE AFFORDABLE CARE ACT  federal government has paid 57 percent of the cost of Medicaid coverage for those ...
CHARLES P BLAHOUS insurance employers other than the smallest businesses were generally to be assessed a penalty if they did not provide health insurance to their employees states were to be required to cover childless adults with incomes of up to 138 percent of the FPL under Medicaid and those with incomes between 100 and 400 percent of the FPL if they lacked Medicaid coverage or an affordable employer offer of health insurance were to be provided with substantial federal subsidies to purchase health insurance through the ACA s new exchanges These various features of the ACA were all intended to work in tandem Federal subsidies for participants in the health exchanges were devised to be most generous for those with incomes between 100 and 133 percent of the FPL effectively capping these low income individuals health insurance premiums in the exchanges at no more than 2 percent of their annual income 25 But it was not expected that most such individuals would be drawing on these generous federal subsidies given that states were required to cover those with incomes below 138 percent of FPL under Medicaid and that eligibility for the subsidies was extended only to those who were not otherwise Medicaid eligible 26 This dynamic changed with the 2012 Supreme Court decision Suddenly states were no longer required to cover this population under Medicaid leaving the subset of these individuals with incomes above the FPL potentially free to buy their health insurance through the exchanges with substantial federal support States have obvious financial incentives to have the federal government subsidize these individuals through the ACA s health exchanges If the individuals are covered under Medicaid states will eventually be required to finance 10 percent of the cost of their coverage under current law If instead the individuals are covered through the exchanges the entire subsidy would be financed by the federal government 27 The evidence further suggests that not only would declining to cover these individuals under Medicaid embody a cost savings for states but that states could potentially provide the individuals with access to more generous health insurance through the exchanges if they are left uninsured by Medicaid Under 2012 CBO estimates 91
CHARLES P. BLAHOUS  insurance  employers  other than the smallest businesses  were generally to be assessed a penalty if t...
MEDICAID UNDER THE AFFORDABLE CARE ACT total average annual insurance value in 2022 for individuals in this income range would be roughly 9 500 in the exchanges but less than 7 000 under Medicaid with federal subsidies of roughly 9 000 in the exchanges and 6 000 under Medicaid 28 Taken together these incentives suggest that leaving the population with incomes above the FPL uncovered by Medicaid is a win win for states delivering both cost savings as well as potentially more generous health coverage for their citizens In recognition of this reality after the Supreme Court decision CBO singled out 100 percent of the FPL as the income threshold at which states would lose their incentive to expand Medicaid CBO anticipates that instead of choosing to expand Medicaid eligibility fully to 138 percent of the FPL or to continue the status quo many states will try to work out arrangements with the Department of Health and Human Services HHS to undertake partial expansions For example some states will probably seek to implement a partial expansion of Medicaid eligibility to 100 percent of the FPL because under the ACA people below that threshold will not be eligible for subsidies in the insurance exchanges while people above that threshold will be if they do not have an offer of affordable coverage from an employer and meet other eligibility requirements 29 In the same report CBO also projected that covering individuals only up to 100 percent FPL under Medicaid would be the most common choice made by states although federal regulatory guidance was not then available as to whether states could make this partialexpansion choice For their part states perceived that their incentives pointed in this direction immediately after the Supreme Court decision A letter sent by the National Governors Association just after the ruling on July 2 2012 to HHS Secretary Kathleen Sebelius asked 92
MEDICAID UNDER THE AFFORDABLE CARE ACT  total average annual insurance value in 2022 for individuals in this income range ...
CHARLES P BLAHOUS whether states that expanded up to 100 percent of FPL would still receive the ACA s enhanced federal assistance percentage 30 The aftermath of the Supreme Court decision displays the leverage of both sides in the federal state discussion of the possible expansion of Medicaid The federal government has the power to determine whether states are in compliance with Medicaid coverage requirements and thus far has held to an interpretation that states must expand fully to 138 percent of the FPL to receive the enhanced federal assistance percentage under the ACA At the same time powerful incentives and leverage are pulling in the other direction As we have seen states have an enormous incentive to decline to cover those above 100 percent of the FPL under Medicaid plus the federal government cannot force them to expand either fully or in part the ultimate expansion decision rests with the states Further shoring up the states leverage the language of the ACA specifies that its enhanced federal assistance percentage will be provided for any newly eligible recipient defined in the statutory text as all those made eligible per the terms of the ACA who were not already eligible at the time the ACA was enacted 31 The interaction of these various provisions of the ACA with the recent Supreme Court decision creates a delicate balance of considerations such that it is unsurprising that states are now making a wide range of decisions based in part on whether they believe they can negotiate satisfactory expansion terms in their discussions with HHS This wide array of state coverage decisions reflects states distinct value judgments and respective budgetary and demographic situations but ultimately the incentives against covering those with incomes above 100 percent of FPL are powerful and appear to be common to all states For the reasons discussed throughout this chapter it is likely that with the passage of time and the continued escalation of Medicaid costs an increasing number of states will conclude that it is in their interest for their citizens with incomes above the FPL to be covered through the health exchanges solely at federal expense 93
CHARLES P. BLAHOUS  whether states that expanded up to 100 percent of FPL would still receive the ACA   s enhanced federal...
MEDICAID UNDER THE AFFORDABLE CARE ACT CONCLUSION The passage of the ACA in 2010 will dramatically increase total Medicaid expenditures though how much of an increase will be a function of individual state decisions many yet to be made in the wake of the 2012 Supreme Court ruling The Supreme Court rendered the ACA s expansion of Medicaid optional for states by striking down the federal government s ability to enforce it by withholding existing Medicaid funding Federal Medicaid expenditures will rise sharply in the years ahead in any event though far more dramatically to the extent that states choose to expand Medicaid coverage States decisions about whether to expand Medicaid in the aftermath of the Supreme Court ruling are complex and closely balanced Despite the arguments of some advocates that expanding Medicaid will reduce state costs of treating the uninsured the available data do not appear to support the suggestion of net cost savings for states On average states should expect their total expenditures to rise significantly if they choose to expand Medicaid These state expansion costs arise because their shares of Medicaid obligations for the expansion population are projected to significantly exceed savings with respect to their current costs of care for the uninsured Such new costs of expansion would accrue at a time when Medicaid expenditures are already straining state budgets on top of increasing baseline cost obligations that are a consequence of rising Medicaid caseloads continuing health care cost inflation and the wearing away of recent federal stimulus assistance Apparently common to all states is a disincentive to expand Medicaid to individuals with incomes above the FPL as these individuals if left uninsured by Medicaid will be eligible for more generous coverage through the ACA s health exchanges with subsidies financed entirely by the federal government With the passage of time and as general Medicaid costs rise it appears likely that more states will feel compelled to respond to this incentive by limiting Medicaid coverage for childless adults solely to those with incomes below the FPL 94
MEDICAID UNDER THE AFFORDABLE CARE ACT  CONCLUSION  The passage of the ACA in 2010 will dramatically increase total Medica...
CHARLES P BLAHOUS NOTES 1 Patient Protection and Affordable Care Act Pub L No 111 148 124 Stat 119 2010 codified as amended sections of 42 U S C 2 Office of the Actuary Centers for Medicare and Medicaid Services 2012 Report on the Financial Outlook for Medicaid Department of Health Human Services 2012 2 http medicaid gov Medicaid CHIP Program Information By Topics Financing and Reimbursement Downloads medicaid actuarial report 2012 pdf 3 Social Security Act 42 U S C 1396c Operation of State Plans http ssa gov OP _Home ssact title 19 1904 htm 4 National Federation of Independent Businesses et al v Sebelius 132 S Ct 2566 2012 5 The Advisory Board Company maintains a running tally of state participation decisions at http www advisory com Daily Briefing 2012 11 09 MedicaidMap As of May 24 2013 this survey found that 26 states had indicated participation 1 was leaning toward participation 4 were pursuing an alternative model 6 were leaning against participation and 13 had declined to participate 6 Congressional Budget Office CBO s May 2013 Estimate of the Effects of the Affordable Care Act on Health Insurance Coverage Washington DC Government Printing Office May 2013 table 1 http www cbo gov sites default files cbofiles attachments 44190_EffectsAffordableCareActHealthInsuranceCoverage_2 pdf 7 Congressional Budget Office CBO s May 2013 Estimate of the Effects of the Affordable Care Act on Health Insurance Coverage Washington DC Government Printing Office May 2013 table 2 http www cbo gov sites default files cbofiles attachments 44190_EffectsAffordableCareActHealthInsuranceCoverage_2 pdf Congressional Budget Office Medicaid Spending and Enrollment Detail for CBO s May 2013 Baseline May 2013 http www cbo gov sites default files cbofiles attachments 44204_Medicaid pdf 8 Office of the Actuary Centers for Medicare and Medicaid Services 2012 Report on the Financial Outlook for Medicaid table 3 9 Congressional Budget Office Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision July 2012 10 Office of the Actuary 2012 Report on the Financial Outlook for Medicaid 39 11 Charles Blahous The Affordable Care Act s Optional Medicaid Expansion Considerations Facing State Governments Mercatus Research Mercatus Center at George Mason University Arlington VA March 5 2013 30 34 http mercatus org publication affordable care acts optional medicaid expansion considerations facing state governments 12 Congressional Budget Office The Long Term Budget Outlook Washington DC Government Printing Office June 2012 13 http www cbo gov publication 43288 Under CBO s two scenarios the projected growth in noninterest spending as a share of GDP over the long term stems from increases in mandatory spending particularly in outlays for the government s major health care programs Medicare Medicaid the Children s Health Insurance Program CHIP and the insurance subsidies that will be provided through the exchanges created under the Affordable Care Act ACA Under both scenarios total outlays for those health care programs would grow much faster than GDP increasing from 5 4 percent of GDP in 2012 to about 10 percent in 2037 13 Office of the Actuary 2012 Report on the Financial Outlook for Medicaid 2012 95
CHARLES P. BLAHOUS  NOTES 1.   Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119  2010   codi...
MEDICAID UNDER THE AFFORDABLE CARE ACT table 3 http medicaid gov Medicaid CHIP Program Information By Topics Financing and Reimbursement Downloads medicaid actuarial report 2012 pdf 14 National Association of State Budget Officers NASBO Budget Topics Healthcare and Medicaid http www nasbo org budget topics healthcare medicaid See also NASBO 2010 State Expenditure Report 2011 http www nasbo org sites default files 2010 20State 20Expenditure 20Report pdf 15 The most recent projection data presented in figure 2 reflect CMS assumptions with respect to state participation in the Medicaid expansion as made in Office of the Actuary 2012 Report on the Financial Outlook for Medicaid table 3 That the statement is true specifically for states that participate in the Medicaid expansion is further substantiated by Centers for Medicare and Medicaid Services 2011 Actuarial Report on the Financial Outlook for Medicaid table 3 which shows a similar pattern under the different assumption that all states participate in the expansion 16 Blahous The Affordable Care Act s Optional Medicaid Expansion 20 17 Office of the Actuary 2012 Report on the Financial Outlook for Medicaid table 3 18 From 2000 to 2010 state financed Medicaid costs grew cumulatively by approximately 48 percent Blahous The Affordable Care Act s Optional Medicaid Expansion 18 19 Jack Hadley and John Holahan The Cost of Care for the Uninsured Kaiser Commission May 2004 http www kff org uninsured upload the cost of care for the uninsured what do we spend who pays and what would full coverage add to medical spending pdf 20 The aforementioned Kaiser study estimates that if covered by Medicaid these individuals health care consumption would rise by roughly 39 percent The full deviation of the 8 percent figure can be found in Blahous Affordable Care Act s Optional Medicaid Expansion 26 21 ACA http www gpo gov fdsys pkg PLAW 111publ148 pdf PLAW 111publ148 pdf 22 Congressional Budget Office Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision July 2012 http www cbo gov publication 43472 23 Blahous The Affordable Care Act s Optional Medicaid Expansion 27 24 Some who have written about this history refer to this result more directly as a mistake See for example Dylan Scott The Story Behind the Biggest Mistake in Obamacare Governing com February 2013 http www governing com blogs fedwatch gov obamacare mistake html 25 Health Care and Education Reconciliation Act of 2010 Pub L No 111 152 1001 2010 26 Scott The Story Behind the Biggest Mistake in Obamacare The ACA stipulates that an individual can t qualify for both Medicaid and a tax subsidy as people between 100 and 138 percent of the federal poverty level technically would To address that gap the ACA said that anyone who qualifies for both would just automatically be enrolled in Medicaid So why don t the thresholds simply meet at 138 percent Well they were supposed to but because of an oversight while the bill was being amended in the Senate they don t But it didn t matter as long as the Medicaid expansion was mandatory which it was always supposed to be But then the Supreme Court ruled last June that the expansion wasn t required states could choose whether or not to expand Medicaid eligibility to 138 percent of the poverty line That s an outcome no one saw coming not even the people who wrote the law By making the Medicaid 96
MEDICAID UNDER THE AFFORDABLE CARE ACT  table 3, http   medicaid.gov Medicaid-CHIP-Program-Information By-Topics  Financin...
CHARLES P BLAHOUS expansion optional the Court exposed this obscure mistake that had been buried in 906 pages of legislation And it created a huge loophole In states that aren t expanding Medicaid those in betweeners residents who make between 100 and 138 percent of the poverty line will now qualify for tax subsidies to buy private insurance instead It was unintentional said one person who was involved in drafting the bill in the Senate Like other sources interviewed for this story this person spoke on condition of anonymity in order to speak candidly about the error and private deliberations around the ACA This strange confluence of events got us here Nobody thought the Supreme Court would rule as it did the source said If the Medicaid expansion had occurred as we wrote it then this wouldn t have mattered The number of turns in the plot was hard to anticipate 27 These subsidies consist essentially of federal tax credits beyond direct subsidy costs states could face other administrative and information technology costs in the exchanges depending on who sets them up and how they are administered 28 For a fuller derivation of these figures see Blahous The Affordable Care Act s Optional Medicaid Expansion 29 Congressional Budget Office Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision July 2012 http www cbo gov publication 43472 30 Letter from the National Governors Association to HHS Secretary Kathleen Sebelius July 2 2012 http www nga org cms home federal relations nga letters executive committee letters col2 con tent main content list july 2 2012 letter affordable html HHS s answer was effectively to say no Letter from Secretary Kathleen Sebelius to governors July 10 2012 http www ncsl org documents health GovLetter7 10 pdf However HHS has subsequently allowed individual states to pursue proposals to effectively allow those above 100 percent of FPL to be enrolled in private insurance plans See http www washingtonpost com blogs wonkblog wp 2013 02 28 arkansass different plan to expand medicaid 31 Sections 1905 and 1902 of the Social Security Act http ssa gov OP_Home ssact title19 1905 htm and http ssa gov OP_Home ssact title19 1902 htm 97
CHARLES P. BLAHOUS  expansion optional, the Court exposed this obscure mistake that had been buried in 906 pages of legisl...
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CHAPTER 6 A PHYSICIAN S PERSPECTIVE DARCY NIKOL BRYAN MD S ocioeconomic factors play a large role in health but historically have been mostly ignored by policymakers with a narrow focus on health care or worse insurance access Economic prosperity neighborhood safety environmental protection educational opportunity and income are all crucial determinants of people s health By focusing on insurance and access while failing to address these important socioeconomic factors the passage of the Patient Protection and Affordable Care Act ACA 1 in March 2010 will have a limited influence on the health and well being of Americans Furthermore the ACA s focus on measuring the process of health care delivery is no substitute for proper health outcome measurement As an obstetrician gynecologist practicing in California s Inland Empire I have the privilege of caring for a diverse population of women coming from a broad array of economic cultural and racial backgrounds They are part of the population that ostensibly the ACA intends to help Unfortunately access to health insurance has a limited impact on overall population health which is influenced by a variety of socioeconomic factors Worse yet the policies currently in 99
CHAPTER 6   A PHYSICIAN   S PERSPECTIVE DARCY NIKOL BRYAN, MD  S  ocioeconomic factors play a large role in health but his...
A PHYSICIAN S PERSPECTIVE place focus heavily on providing insurance with little regard to access to health care or outcomes There has been even less regard for the effect of these policies on the practice of medicine and for the variety of unintended consequences that have been detrimental to the care of patients and provision of health care This chapter with a preliminary sketch of the philosophical underpinnings of the debate that too often regards health care as a right will briefly describe the history of Medicaid and the concomitant state program Medi Cal that provides health insurance coverage for many of my patients along with exploring other government attempts to expand health insurance The sections that follow discuss the shortcomings of this focus on insurance first describing my direct experiences as a physician I then examine how the system sets up disincentives for cost containment and provokes overtreatment The next section considers the tensions with respect to physician autonomy that were present when Medicaid and similar programs were created Lastly I discuss the fact that health insurance is a relatively small factor in health outcomes It is critical that we shift focus to health outcomes and away from a narrowed focus on health insurance CONCEPT UA L TENSIONS It is useful to briefly discuss why some policy makers support a strong governmental role in the health care marketplace buttressing their arguments with claims of market failures The philosophical roots of the quest for universal health coverage the ACA and the creation of the Medicaid program lie in the concept of a human right to health Though this paper is not advocating that health care is a right it is nonetheless critical to understand the conceptual tension that exists because many people do believe that The United States has largely avoided the language of human rights in its efforts to reform its health care system possibly because the Bill of Rights precisely denotes what is and therefore what is not 100
A PHYSICIAN   S PERSPECTIVE  place focus heavily on providing insurance, with little regard to access to health care or ou...
DARCY NIKOL BRYAN MD a right The concept of rights springs up in public policy regularly for example the right to know what is in your food the right to basic telecommunications Nevertheless human health as a right and the laws that subsequently arise from that basis are founded on two beliefs and concepts 1 human rights are universal and immutable and 2 human rights transcend state sovereignty and oblige governments to protect respect and fulfill the human rights of all people within their jurisdictions 2 Historically a human right to health was initially formalized within international law in Article 25 of the 1948 Universal Declaration of Human Rights UDHR 3 In the year 2000 the United Nations UN Committee on Economic Social and Cultural Rights drafted General Comment 14 which presents four elements key to achieving the right to health availability accessibility acceptability and quality 4 Many ACA provisions address some of the criteria established by the United Nations for each of these key elements 5 It is important to note that the United States has not ratified the United Nations assertion of a human right to health A logical outcome of the United Nations concept is a single payer health care system 6 Philosophically there are two kinds of rights negative and positive Negative rights oblige inaction in other words others may not damage our health take our private property or inhibit freedom of speech Positive rights entail a right to receive some good or service from another and involve correlative duties obliging provision of that good or service The notion of a right to health care falls under the category of a positive right Importantly it is inherently controversial as to who is obliged to provide health care services Jan Narveson asserts that there is no right to health care and that compelling someone else to pay for it through compulsory taxation is a right no one has It is a familiar contradiction of the welfare state to argue Hey this is such a good thing that of course you want it Therefore we will make you take it The conclusion is inconsistent with its premise 7 Then there is the problem of distributive justice how should health care be distributed once its provision is compelled Should it be on the 101
DARCY NIKOL BRYAN, MD  a    right.    The concept of rights springs up in public policy regularly  for example, the right ...
A PHYSICIAN S PERSPECTIVE basis of need merit or strict equality 8 Narveson states the following No one should be in the position that his fellows can exact payments from others for avoidable voluntary imposed risks 9 Smoking overeating excessive alcohol intake and other high risk lifestyle choices have completely foreseeable health consequences Is it just to drain the financial resources of those who are willing to devote effort time and energy to maintaining their physical health in order to support those who do not care FROM MEDICA ID TO THE A FFOR DA BLE CA R E ACT A desire to help the poor has resulted in the creation of a complex network of federal and state programs with the ACA being the most recent and ambitious attempt to expand health insurance Med ica id s H istor ica l I mpa ct Medicaid s enactment in the Social Security Amendments of 1965 mandated the coverage of certain categorical groups e g poor families receiving cash assistance from the Aid to Families with Dependent Children Its enactment arose out of the long struggle to adopt universal health insurance in the United States affirming efforts by the federal government to bolster the public health infrastructure 10 Since then incremental expansion of the program has occurred with the view by some policymakers toward the creation of a path to more universal health care for Americans Medicaid is to serve as a cornerstone beyond welfare medicine Medicaid s instigation was built upon the Kerr Mills program 1960 63 which offered broad health care benefits to the low income elderly 11 With the establishment of Medicaid coverage was expanded to protect the blind permanently disabled and adults in mostly single headed families and their dependent children 12 Each state was given the discretion to determine the poverty level required to be eligible for the program This resolution led to great variation in Medicaid s implementation across the country The flexibility provided 102
A PHYSICIAN   S PERSPECTIVE  basis of need, merit, or strict equality 8 Narveson states the following     No one should be...
DARCY NIKOL BRYAN MD to the states was eventually limited by the Supplementary Security Income program of 1972 which joined state run assistance programs for the elderly blind and disabled into one nationally uniform program with eligibility determined by a federal standard 13 Medicaid expansions to children infants and pregnant women increased gradually between 1984 and 1990 ultimately covering about five million children and 500 000 pregnant women across the United States 14 This expansion was driven by the prodigious costs linked to the care of low birth weight LBW babies and their increased risk for multiple health problems throughout their lives LBW infants defined as a birth weight less than 2 500 grams about 5 5 pounds are at higher risk for high blood pressure cerebral palsy deafness blindness and lung disease as well as behavioral problems and cognitive developmental problems 15 Access to prenatal care was touted to make good economic sense because it was believed to lessen the incidence of LBW infants For example the expected costs of delivery and initial care of a baby weighing 1 000 grams at birth was greater than 100 000 in year 2000 dollars 16 Eventually Medicaid has come to finance about 40 percent of all births and has supported the creation of the modern neonatal intensive care unit 17 During this time increases in Medicaid expenditures occurred mainly through budget reconciliation bills masking the program s expansion 18 Meanwhile state and federal health care spending for the poor increased from 75 billion in 1986 in 1996 dollars to almost 180 billion in 1996 19 In 2011 federal and state Medicaid spending totaled almost 414 billion 20 Medicaid has facilitated the building of health care infrastructure in poor urban and rural communities In doing so health care providers and health insurers play a crucial role in gaining expansions of the program and opposing reductions 21 The ACA furthers the expansion of Medicaid by presenting a federal option to cover any low income adult under age 65 without regard to personal characteristics e g disability pregnancy States can now choose to extend Medicaid to these adults with incomes at or below 133 percent of the 103
DARCY NIKOL BRYAN, MD  to the states was eventually limited by the Supplementary Security Income program of 1972, which jo...
A PHYSICIAN S PERSPECTIVE federal poverty level FPL This establishes Medicaid as a platform for aiding coverage of more than 30 million uninsured Americans Notably through a series of landmark judicial decisions some have come to view Medicaid as a social contract with individually enforceable legal entitlements and rights to care 22 For those who view Medicaid as an individual right this philosophical positioning can be seen in such initiatives as the community health centers program the deinstitutionalization of health care provision through public health care centers and the delivery of health care to children with special needs When I was a medical school resident in California the drop in obstetrical volume was notable as Medi Cal patients were delivered in private hospitals away from the training hospitals that had traditionally supported indigent care Access to mainstream health care became a perceived right T he ACA s I mpa ct on Med ica id With the ACA s move toward using Medicaid as a means to ensure universal health care as sponsored by the federal government federalism tensions have arisen as states fight the expansion States have traditionally varied in their commitment to Medicaid with some states being more administratively dexterous in enhancing participation rates whereas others are much less flexible The ACA operating alongside Medicaid is likely to create enormous administrative problems as fluctuating enrollee incomes will cause individuals to alternate between Medicaid and health exchange products 23 States with low Medicaid participation rates are particularly threatened by the ACA because of the fact that residents currently eligible for Medicaid but not enrolled would be added to the program without triggering the federal government s generous matching payments Additionally the federal funding share for those newly eligible under ACA guidelines will decline to 90 percent by 2020 further threatening states budgets For more on the ACA s implications for state budgets see chapter 5 page 83 104
A PHYSICIAN   S PERSPECTIVE  federal poverty level  FPL . This establishes Medicaid as a platform for aiding coverage of m...
DARCY NIKOL BRYAN MD In 2011 California was at the top of the list of states for a budget shortfall in the amount of 14 4 billion 24 In the future the effects of Medicaid expansion will be uniquely magnified in California by the large number of uninsured and undocumented immigrants living there This group will comprise approximately 1 24 million people or 40 percent of those who will remain uninsured after ACA Of the remainder of the uninsured who are not undocumented immigrants 36 percent will be those subject to the individual mandate who will have chosen to remain uninsured 13 percent are projected to be documented residents not subject to the mandate and 11 percent will have had coverage but then lost it Thirty eight percent of the 3 77 million currently uninsured in California will be on public insurance in 2016 25 a very large budgetary impact indeed Cost Containment Strategies in the ACA and Medicaid Approximately half of the increase in health insurance provisions resulting from the ACA will be obtained through expansion of the Medicaid program and will account for an estimated 45 percent of the overall cost of reform 26 Both public and private national spending on health care is projected to grow by 5 8 percent per year through 2020 according to the actuaries for the Centers for Medicare and Medicaid Services CMS 27 The federal and state governments together are estimated to spend about 3 4 billion more in providing public insurance to the formally uninsured 28 Unfortunately current cost containment strategies are focused on reduction of federal health expenditures rather than creating the means for decreasing per capita spending on health care in the United States which is more than twice that observed in other developed nations 29 As an example of federal cost containment strategies Section 3403 of the ACA has created the controversial Independent Payment Advisory Board IPAB which will recommend ways to reduce costs if the CMS chief actuary predicts that the per capita rate of growth for Medicare spending will exceed the targeted rate 30 105
DARCY NIKOL BRYAN, MD  In 2011, California was at the top of the list of states for a budget shortfall, in the amount of  ...
A PHYSICIAN S PERSPECTIVE Under the law IPAB recommendations are limited and may not raise costs to beneficiaries restrict benefits or modify eligibility criteria 31 Instead the law directs IPAB s focus on Medicare Advantage Plans Medicare Part D skilled nursing facilities home health dialysis ambulance services ambulatory surgical centers and durable medical equipment 32 Other ideas for reining in US medical care spending included in the ACA are policies promoting accountable care organizations ACOs primary care medical homes bundled payment pay for performance comparative effectiveness research and health information technology 33 Secretary of Health and Human Services HHS Kathleen Sebelius stated that every cost cutting idea that every health economist has brought to the table is in this bill 34 But systemwide reliable cost control is lacking with tepid reform a realpolitik necessity in order to get the ACA approved by the legislature 35 At the same time the Obama administration and congressional Democrats extracted more than 400 billion in projected savings out of Medicare largely by reducing payments to hospitals and private insurers that operate as Medicare Advantage plans 36 Decreasing reimbursement rates will likely threaten provider access Ironically the American Medical Association agreed to support the ACA after the US Congress promised to change the sustainable growth rate used to calculate updates to fee schedule payments in Medicare 37 As James Capretta explains in chapter 7 another proposed federal budget cost saving device is to shift the risk of Medicaid onto the states in the form of block grants With block grants the federal government would allot a fixed amount of dollars per capita to the states which in turn would have more flexibility in determining Medicaid eligibility and benefits Yet as states face a budgetary Armageddon through increasing health care expenditures many may choose to limit eligibility leading to the same old problems of expensive emergency room care and minimal access to primary care and no improvement in health outcomes 106
A PHYSICIAN   S PERSPECTIVE  Under the law, IPAB recommendations are limited, and may not raise costs to beneficiaries, re...
DARCY NIKOL BRYAN MD FROM PH ILOSOPH Y TO PR ACTICE ON E PH YSICI A N S EX PER IENCE When I was a new graduate from the University of California at Los Angeles s OB GYN residency program in 2004 I opted to practice in Riverside having an affection and admiration for the hardworking people in California s Inland Empire combined with an awareness of the region s great need for doctors The Inland Empire encompasses Riverside and San Bernardino counties and is California s fastestgrowing metropolitan area driven by what economist John Husing has described as dirt theory i e cheap land attracting growth through affordable housing 38 The region has suffered for decades from slow economic growth with a poor population supported mainly by agricultural work The region I work in is what the Brookings Institution calls the Third California extending from the outer suburbs of Los Angeles to the Northern Californian foothills 39 Composing the southern part of the Third California Riverside and San Bernardino counties have 3 7 million residents The population tends to be substantially less well educated than that of the coastal regions 25 percent of those 25 or older have less than a high school degree 40 The Inland Empire has significant health problems linked to its challenging socioeconomic and environmental conditions Its role as a transportation hub for the Los Angeles Long Beach port complex has led to increased air pollution from heavy automobile and truck traffic corridors Two thirds or more of adults ages 18 and older in the region are overweight or obese a source of much preventable disease and death 41 Other health problems linked to poverty are also of concern According to the University of Wisconsin Population Health Institute County Health Rankings Riverside placed 27th and San Bernardino 44th in health outcomes out of 57 counties in California 42 As the Third California continues to grow rapidly with a population of almost 10 million greater than that of 42 states in the United States 43 incredible strains will be placed on the region s existing health care infrastructure Disturbingly the Inland Empire has the 107
DARCY NIKOL BRYAN, MD  FROM PH ILOSOPH Y TO PR ACTICE  ON E PH YSICI A N   S EX PER IENCE  When I was a new graduate from ...
A PHYSICIAN S PERSPECTIVE worst shortage of physicians in California about 40 primary care doctors and 70 specialists per 100 000 residents approximately onehalf the recommended primary care ratio 44 As a physician I am overwhelmed by these numbers and the thought of so many needing care This insupportable provider shortage which will likely worsen under the ACA probably will lead to even greater delay in health care ranging from longer wait times poor access to providers and an increased quantity of emergency department visits Although the expansion of Medicaid through the ACA of 2010 is projected to increase insurance coverage accounting for one third of the overall growth in insurance coverage the gap between the number of available doctors and patients will be exacerbated Notably only one half of existing primary care physicians accepted new Medi Cal California s Medicaid patients during 2008 45 However as will be discussed later access to providers is far from the most important issue in health for this population As an obstetrician I take care of pregnant women covered by MediCal Yet sometimes I have felt alone in the care of these high need patients since Medi Cal as it currently stands covers only obstetrical aspects of medicine As an example I recall a lovely stay at home mom who came to me for care early in her third pregnancy Later at the end of her first trimester she started to randomly lose consciousness for short periods throughout the day The work up for loss of consciousness however is quite comprehensive It is not in the field of obstetrics as it requires comprehensive evaluation of the heart and the brain As a specialist in a multidisciplinary clinic I knew only obstetricians and pediatricians took Medi Cal insurance I had no access to colleagues in neurology or cardiology who might provide their expertise to my patient because Medi Cal simply did not provide them with adequate reimbursement for their services Subsequently I had to transfer her to a county hospital disrupting care continuity and adding stress to the patient and her family Such are the vagaries of our current system 108
A PHYSICIAN   S PERSPECTIVE  worst shortage of physicians in California  about 40 primary care doctors and 70 specialists ...
DARCY NIKOL BRYAN MD COST OF MEDICIN E Why is medicine so expensive Culturally the western biomedical model framing disease as an invader to be defeated is the foundation of modern medicine and explains much about the typical physician s restricted focus on intervention Additionally the incentive system doctors face through reimbursement formulas explains a lot of the growth in the costs of health care The scientific and positivistic approach to medicine has in many ways launched the modern medical industrial complex fostering a business model of high cost health care delivery that does not match social needs Large extremely specialized capital intensive institutions have been created with the resulting neglect of less costly primary and chronic care 46 According to the book Medicine and Culture 47 the American emphasis on aggressive medicine compared with that of our European colleagues is rooted in our cultural predilection for bold action and acute care over contemplation and judicious intervention that waits for solid empirical evidence of treatment efficacy In my own field of obstetrics and gynecology American obstetricians often embrace technology with little evidence as to efficacy The reasons behind this are a complex mixture of cultural attitudes economic incentives to perform procedures and professional liability concerns 48 For example maintenance tocolytics uterine muscle relaxants used to treat preterm uterine contractions have not been found to prevent prematurity or reduce perinatal mortality yet many obstetricians still use them Antenatal nonstress tests NSTs are routinely ordered for women considered to be at increased risk for stillbirth without significant evidence of efficacy 49 The rate at which labor is induced increased from 9 5 percent to 21 2 percent between 1990 and 2004 in the United States despite little evidence of clinical benefit 50 and the national Cesarean section C section rate has increased from 20 7 percent to 30 2 percent from 1996 to 2005 51 Unnecessary induction of labor and C sections add significantly to the cost of care Much of physician reimbursement is still driven by procedure Current Procedural Terminology or CPT codes In other 109
DARCY NIKOL BRYAN, MD  COST OF MEDICIN E  Why is medicine so expensive  Culturally, the western biomedical model framing d...
A PHYSICIAN S PERSPECTIVE words health care providers must do something for higher compensation As for professional liability when was the last time an obstetrician was sued for ordering too many fetal ultrasounds or monitoring her patient too closely with NSTs We are always criticized for not performing a C section in a timely fashion rarely for performing an unnecessary one The modern medical industrial complex in the United States is notoriously poor at calculating and controlling cost using opaque byzantine reimbursement formulas that lack transparency even to many health care executives Costs are allocated to procedures departments and services based on payer reimbursement not on the actual resources used to deliver care 52 Kaplan and Porter eloquently state that without proper measurement the healthy dynamic of competition in which the highest value providers expand and prosper breaks down Instead we have a zero sum competition in which health care providers destroy value by focusing on highly reimbursed services shifting costs to other entities or pursuing piecemeal and ineffective line item cost reductions 53 They go on to assert that in order to manage value patient outcomes achieved per dollar expended both outcomes and cost must be measured at the patient level This requires careful measurement of costs over a complete cycle of individual patient care for a particular medical condition Most institutions are not administratively equipped to do this Instead providers measure only particular interventions they control focusing on evidence based guidelines and care processes 54 Process measurement is no substitute for outcome measurement Porter defines three tiers to outcome measurements most relevant to patients 1 health status achieved or retained 2 process of recovery and 3 sustainability of health Having feedback on patient outcomes leads to innovation in care and lessens cost 55 Another barrier thought to limit cost containment in health care is moral hazard due to insurance distorting health care markets Having health insurance is believed to lead to excessive consumption of health care goods because insured individuals will consume medical services 110
A PHYSICIAN   S PERSPECTIVE  words, health care providers must do something for higher compensation. As for professional l...
DARCY NIKOL BRYAN MD past the point at which the marginal utility of an additional service is equal to its marginal cost 56 This prevents optimal pricing Under the current reimbursement environment stimulated by the ACA groups of providers are consolidating within the US market at an accelerated rate with multispecialty group practices or hospitals buying smaller practices and forming regional monopolies 57 Such super groups will have a robust advantage in rate negotiations Hospitals affiliated with a system and hospitals in very concentrated markets typically have higher charges and profits 58 States in turn are outsourcing Medicaid to managed Medicaid plans whose contracts are further fueling consolidation as commercial insurers buy their way into the market or make acquisitions to increase their market share and achieve economies of scale 59 Medicaid managed care capitation rates are linked to fee for service FFS historical rates and must be high enough to attract commercial participants 60 State officials assert that privatizing Medicaid through managed care leads to decreased cost and improvement in quality of care This assumption has increased the percentage of Medicaid recipients enrolled in health maintenance organizations and other forms of Medicaid managed care from 11 to 71 percent from 1991 to 2009 61 A recent study by Duggan suggests that shifting Medicaid recipients from FFS to managed care did not on average reduce Medicaid spending 62 The data on quality of Medicaid managed care is also mixed Aizer et al studied pregnant women in California and found that those in Medi Cal managed care received fewer prenatal visits and delivered fewer healthy babies than patients in the traditional Medicaid program 63 Consolidation has also been stimulated by payment reform efforts through ACO contracts established between CMS and ACOs Providers that meet quality standards are eligible to share savings with Medicare So far CMS has contracts with approximately 250 ACOs covering four million Medicare beneficiaries 64 The goal is to move from FFS payment to models supporting provider integration care coordination and patient education within a medical home But as organizations consolidate costs will increase through greater 111
DARCY NIKOL BRYAN, MD  past the point at which the marginal utility of an additional service is equal to its marginal cost...
A PHYSICIAN S PERSPECTIVE bargaining power in regional markets And as Porter has shown our current assessment of value is deeply flawed The imprecise quality metrics proposed to resolve this problem are unlikely to lead to improved health outcomes PH YSICI A NS R ESPONSE TO MEDICA ID The forces that drive costs up in medicine also play a role in distorting physicians incentives in other ways as their autonomy is limited affecting how they practice medicine Historically individual physicians have treated a certain amount of uninsured patients in their practice without charge or for a reduced fee as part of the medical profession s ethical obligation to care for the poor With the advent of Medicare and Medicaid in 1965 what had been private nonsystematized volunteer work by doctors and charitable organizations shifted to a broader social responsibility embodied in public insurance These programs subsidized physicians ability to care for the indigent and needy They also profoundly transformed American medicine at the socioeconomic level making medicine dependent on social institutions and recasting it as a profession 65 The federal government s attempt to seek control over the cost of medicine stimulated by Medicare and Medicaid funding inaugurated the era of managed care in the 1970s leading to the loss of medicine s independent professional and moral identity and altering the physician s relationship with his or her patient Jotterand states the following Cost containment appeared suddenly as a moral obligation imposed on the physician This means that the physicians are no longer exclusively committed to their patients but also dependent on and controlled by the social institutions that structure health care in particular its economic aspects 66 Physicians real incomes have been largely stagnant since the 1990s and have even declined in the past 10 years with the rapid expansion of managed care and private insurers adopting Medicare s physician fee schedule as a benchmark in negotiating payment rates 67 If Medicaid is 112
A PHYSICIAN   S PERSPECTIVE  bargaining power in regional markets. And as Porter has shown, our current assessment of valu...
DARCY NIKOL BRYAN MD to be an effective cornerstone of health care reform doctors will need to be fully on board The most obvious barrier to physician acceptance is the typically low reimbursement levels offered by Medicaid for physician services States have broad scope in setting physician reimbursement rates causing Medicaid fees to vary much more widely than Medicare fees In many states Medicaid pays only about one third of what Medicare pays for the same service 68 Data from the National Center for Health Statistics on the use of office based physician care imply that higher Medicaid fees increase the number of private physicians in medical and surgical specialties accepting Medicaid patients 69 Sommers et al examined primary care physicians willingness to see Medicaid patients by sampling 1 460 primary care providers PCPs who worked in an outpatient setting from the 2008 Center for Studying Health System Change Health Tracking Physician Survey supplemented by 15 in depth telephone interviews 70 The study found that PCPs who were already serving a high volume of Medicaid patients were most likely to take on new Medicaid patients Four out of 10 of these PCPs work in hospital based practices and community health centers tending to practice in lower income areas Practices based in hospitals can provide extra personnel such as residents and administrative efficiency like centralized billing that subsidize primary care provision to the poor In addition many Medicaid enrollees live in areas more likely to be served by community health centers and public hospitals e g the inner city than by office based physician practices 71 PCPs that practice in higher income areas tended to take few or no Medicaid patients citing low reimbursement difficulty arranging specialist care burden of dealing with psychosocial issues of poverty and administrative hassles with Medicaid billing requirements Notably in the Sommers et al study Medicaid reimbursement fee levels are only one of many factors affecting the number of physicians willing to accept Medicaid patients If increasing patient access to physicians is to be achieved simple fee increases alone will not be enough to expand physician supply Cunningham and Nichols examined the effects of Medicaid reimbursement on access to care of 113
DARCY NIKOL BRYAN, MD  to be an effective cornerstone of health care reform, doctors will need to be fully on board. The m...
A PHYSICIAN S PERSPECTIVE Medicaid enrollees and found other determinants had a strong influence as well including practice type the extent of Medicaid managed care penetration in a particular geographical region and the racial and ethnic composition of physicians and their communities 72 In addition to practice type difficulty in coordinating care for Medicaid patients is another barrier to physician participation Organizations having a large Medicaid population achieve the most effective health results given their familiarity with the patients special needs and their having an existing infrastructure for psychosocial support Problems in disease management in the indigent patient population are further exacerbated by patients fluctuating between insured and uninsured status resulting in loss of care continuity Many in this population have difficulty communicating because of phone access language barriers illiteracy and disability One proposed method for quality improvement in Medicaid care is the creation of disease management programs dealing with chronically ill enrollees As is well recognized 50 percent of total health care spending is due to 25 percent of the population that has heart disease diabetes asthma and hypertension 73 Two major models exist for Medicaid chronic disease management programs One is a primary care focused action plan built on the chronic care model with participation by Federally Qualified Health Centers The other is state investment in private disease management vendors 74 The difficult goal of disease management programs is to improve health status by reducing unnecessary hospitalizations increase primary care utilization and improve medication compliance and patient self management skills A later analysis by Cunningham and Hadley75 led to some startling conclusions The percent of physicians providing any charity care fell significantly from 76 3 percent in 1996 97 to 68 2 percent in 2004 05 and a growing number of doctors are receiving no income from Medicaid or are not accepting new Medicaid patients This is likely secondary to further erosion of physician autonomy Physicians are shifting to larger practices or institutional settings in order to gain the following 1 leverage in negotiating with health plans 2 economies 114
A PHYSICIAN   S PERSPECTIVE  Medicaid enrollees and found other determinants had a strong influence as well, including pra...
DARCY NIKOL BRYAN MD of scale to counteract the increasing administrative and regulatory requirements of practicing medicine 3 financial security through salaried positions and 4 higher quality of life with a more flexible work schedule Interestingly being part of a large group prohibits individual physician decision making in providing charitable care i e free care against organizational policy but large group membership improved the likelihood of physician acceptance of Medicaid Autonomous physicians who owned their own practices were oppositely aligned and more likely to provide charity care and less likely to accept Medicaid Cunningham and Hadley conclude free care will become increasingly concentrated in safety net providers such as public hospitals and community health centers Unless steps are taken to reduce the number of uninsured safety net providers are likely to be overwhelmed by this increasing concentration of care at their facilities and as a consequence more uninsured patients will not receive any care at all 76 Loss of physician professional autonomy leads to an erosion of traditional physician professional values such as free care for the poor And poverty is a critical factor when it comes to health POV ERT Y S IM PACT ON HEA LTH A family s income level is associated with morbidity and premature infant mortality both internationally and within the United States 77 Important and modifiable risk factors can be discovered and addressed during prenatal care visits thereby improving pregnancy outcomes In the late 1980s rising concern about the United States high infant mortality rate compared with that of other industrialized countries prompted passage of federal laws expanding Medicaid coverage for pregnant women California thus followed suit by implementing several health policies aimed at increasing prenatal insurance coverage and utilization of care 78 To understand the magnitude of Medi Cal it is useful to know that one out of every eight babies in the United States is born in California 79 Throughout the 1980s and 1990s California expanded Medi Cal coverage to pregnant women 115
DARCY NIKOL BRYAN, MD  of scale to counteract the increasing administrative and regulatory requirements of practicing medi...
A PHYSICIAN S PERSPECTIVE by 1 extending public insurance to undocumented foreign born women 2 increasing income eligibility from 110 to 200 percent of the FPL and 3 eliminating the assets test for women with incomes below 200 percent of FPL Additionally barriers to prenatal care coverage were addressed by 1 increasing payments to obstetric providers by 85 percent 2 implementing continuous eligibility throughout the pregnancy 3 shortening the Medi Cal application form and 4 instituting presumptive eligibility allowing temporary but immediate coverage for women who believe they are eligible for Medi Cal 80 In response to concerns about fraud as Medi Cal coverage expanded the state created the California s Department of Health Care Services antifraud program and implemented the annual Medi Cal Payment Error Study in 2004 81 Following statewide policy changes studies were done to assess the impact of increased access to prenatal care through expansion of Medi Cal For example Braveman et al conducted a cross sectional postpartum survey of 3 071 low income women with Medi Cal or private coverage throughout pregnancy in California from 1994 to 1995 This was accomplished in order to identify critical noninsurance barriers to timely prenatal care 82 Of those women 28 percent had late prenatal care e g the first health care provider visit occurred after 13 weeks of pregnancy The following prepregnancy factors beyond the reach and impact of publicly supported programs for pregnant women were found to be the most important risk factors for untimely prenatal care 1 unwanted or unplanned pregnancy 2 no regular health care provider before pregnancy 3 education at or below high school level and 4 transportation problems Another study performed by Nothnagle et al investigated risk factors for late or no prenatal care after the expansion of Medi Cal 83 A statewide postpartum survey of 6 364 women delivering in California hospitals from 1994 to 1995 was conducted and found that absolute poverty at or below the FPL was associated with a ninefold increased risk of no prenatal care after adjusting for insurance age parity marital status ethnicity and other significant potential barriers 84 The authors surmised that 116
A PHYSICIAN   S PERSPECTIVE  by   1   extending public insurance to undocumented foreign-born women   2  increasing income...
DARCY NIKOL BRYAN MD women in absolute poverty were socially marginalized therefore did not enroll in Medi Cal and obtain prenatal care because they lived in a family or community unsupportive of prenatal care Nearly 29 percent of women surveyed who had no prenatal care before delivery reported that their receiving prenatal care had not been very important to those close to them 85 Despite the value of prenatal care on an individual basis the short time these women in poverty spend with a health care provider can be like a Band Aid on the gaping wound of harsh daily life I have pregnant patients who work in factories with no air conditioning or long hours in retail with little job security Telling them to sit down or hydrate when having uterine irritability must seem straight out of fantasy land for them As those in population health sciences already recognize the social and environmental determinants of health are critically important demanding a move beyond the narrow focus on access to health care Illuminating this point further Kindig et al found that female mortality rates rose in 42 8 percent of US counties from 1992 to 2006 86 The authors sampled 3 140 counties or county equivalents compiling data from County Health Rankings the Behavioral Risk Factor Surveillance Survey and the Centers for Disease Control and Prevention s compressed mortality database The county level percentage change in all cause age adjusted mortality rate per 100 000 residents ages 75 or under for two time periods 1992 96 and 2002 06 were examined The authors used regression analysis to examine which county level factors were associated with changes in mortality rates for males and females during this timeframe Interestingly none of the medical care factors e g rates of primary care providers preventable hospitalizations percentage of uninsured predicted changes in male or female mortality 87 Geography had the strongest association with female mortality rates Counties in the South and the Western United States had 6 percent higher female mortality rates than those in the Northeast 88 Kindig et al provided further evidence with this analysis that socioeconomic factors such as education levels and rates of children living in poverty 117
DARCY NIKOL BRYAN, MD  women in absolute poverty were socially marginalized, therefore did not enroll in Medi-Cal and obta...
A PHYSICIAN S PERSPECTIVE have an equally strong or stronger association with county mortality rates compared to access to medical care no perceived impact or individual behavior e g smoking rates having some impact America s Health Rankings has established four health determinant categories with weights of factors impacting health assigned by an expert panel as follows 36 percent personal behaviors somewhat contradictory to the Kindig et al study 25 percent community environment 18 percent public and health policies and 21 percent clinical care 89 The University of Wisconsin along with the Robert Wood Johnson Foundation has used the following weights of health factors in their county health rankings 40 percent social and economic factors 30 percent health behaviors 20 percent clinical care and 10 percent physical environment 90 Although the exact weights of the socioeconomic factors may not be precise the implications for addressing health are clear They count and perhaps much more than clinical care Certainly intrinsic or individual biological factors affecting health such as genes age and sex cannot be altered Yet economic conditions are modifiable and have a critical influence as well These factors are outside the typical realm of physicians and are rarely addressed by hospitals health plans or even the public health community to a deep and meaningful extent Economic prosperity neighborhood safety environmental issues educational opportunity and income all are crucial determinants of a region s morbidity and mortality In sum place matters 91 as has been seen in the recent region specific rise in female mortality in the United States As a physician who has devoted her life to the health and well being of women I find it discouraging that clinical care has only a 20 percent impact for all that effort Yet doctors inherently focus on individual patients and their needs This is both our strength and our evident loss of effectiveness The problem with focusing exclusively on health care access is that it ignores socioeconomic factors As Evans and Stoddart have stated The concern is rather that the remaining shortfalls the continuing burden of illness disability distress and premature death are less and 118
A PHYSICIAN   S PERSPECTIVE  have an equally strong or stronger association with county mortality rates compared to access...
DARCY NIKOL BRYAN MD less sensitive to further extensions in health care we are reaching the limits of medicine At the same time the evidence is growing in both quantity and quality that this burden may be quite sensitive to interventions and structural changes outside the health care system 92 The importance of income levels on mortality is well recognized with Peter Muening et al estimating that Americans living on incomes less than 200 percent of the FPL claimed more than 400 million quality adjusted life years number of years of life that would be added by intervention between 1997 and 2002 compared with those living on incomes 200 percent or more of the FPL 93 This statistic is greater in impact than tobacco use and obesity 94 Education levels also have a huge effect on health Adults who do not have a high school diploma or GED are three times more likely than those with a college education to die before age 65 Every additional year in educational attainment reduces the odds of dying by 1 to 3 percent 95 Because of the relative importance of these other factors the ACA quite obviously will have only a limited influence on the health and well being of Americans As has been demonstrated access to health care providers and institutions is not the main issue in population health Notably the ACA does not take a public health approach in focusing on deficiencies in the United States health system but rather attends to issues of health insurance 96 However if national health outcomes and improvement are lightly weighed in the balance the policy ramifications of the law are quite notable As a consequence of the ACA eligibility will be expanded to cover individuals making a higher income and eliminate restrictions to allow for coverage of everyone with incomes under the specified level not just the categorically eligible 97 Interestingly while trying to increase access to health care providers the ACA seeks to contain costs related to health care expenditures by reducing payments to certain health plans and providers accepting Medicaid The effectiveness of this approach has serious limitations If cost restraints imposed are too harsh physicians and hospitals will be forced to opt out of public insurance an effect precisely the opposite of the one intended 119
DARCY NIKOL BRYAN, MD  less sensitive to further extensions in health care   we are reaching the limits of medicine. At th...
A PHYSICIAN S PERSPECTIVE CONCLUSION The essential question is how can we ever achieve adequate health care with so many layers of need and at such crippling cost The problems are real immense and complex The United States spends everincreasing sums of money for marginal benefits at best Too much medical intervention can be unnecessary possibly harmful and without good scientific evidence as health care provision focuses on processes not outcomes The business model of the medical industrial complex is opaque and notoriously complex with no clear link between price and value Physicians are overwhelmed and dispirited as they see their time which should be devoted to caring for patients consumed by bureaucratic hurdles multiplying regulations and diminishing compensation In vast numbers doctors are shedding their traditional autonomy and becoming disempowered employees by merging their practices into corporate medicine Medicine will be and has been diminished as a vital profession To understand these unwholesome phenomena we should pull back the conceptual lens and look at the definition of health care If you ask most people how they would want to spend their money or time being in a medical center or hospital is at the bottom of the list Our personal idea of health and well being is different from health care Well being encompasses work that satisfies and sustains having respect and support from friends and family clean air and green vistas safe neighborhoods to call home and much more To view the body narrowly as a machine with parts that needs to be fixed misses the critical ramifications of well being on physical health Concepts as nebulous as stress and despair rumble beneath the statistical surface as we see mortality rates layered along socioeconomic levels Yet the scientific biomedical model of health fosters the notion that well being can somehow be obtained purchased in a doctor s office or hospital Within this philosophical framework modern societies devote ever increasing proportions of economic resources to health care As is clear from the amplifying focus on cost containment health care is not free It requires a major commitment in time energy 120
A PHYSICIAN   S PERSPECTIVE  CONCLUSION  The essential question is, how can we ever achieve adequate health care with so m...
DARCY NIKOL BRYAN MD skills and capital Advances in medical technology and interventions have made huge strides in prolonging life and combating disease But this is not the full picture Population mortality is linked to levels of social support stress and powerlessness in very fundamental ways Scholars categorize the four determinants of health as lifestyle environment human biology and health care organization Health care is only one component As a nation we must ask ourselves if our unsustainable commitment of economic resources to health care is making us less healthy as a country The solution will not come by devoting more time or intellectual energy on fixing the health care system One hundred percent of governmental effort going toward 20 percent of the problem is a fatal sort of blindness By impoverishing ourselves and our nation on health care expenditures are we not neglecting the vital elements that are maintaining our health and well being State and federal budgets consumed with paying medical bills cannot fund for example education environmental protection or the creation of safe neighborhoods Money dedicated to health care simply cannot be spent elsewhere NOTES 1 Patient Protection and Affordable Care Act Pub L No 111 148 124 Stat 119 2010 codified as amended sections of 42 U S C 2 Lance Gable The Patient Protection and Affordable Care Act Public Health and the Elusive Target of Human Rights Journal of Law Medicine Ethics 39 no 3 2011 347 3 United Nations General Assembly Universal Declaration of Human Rights December 10 1948 217 A III http www un org en documents udhr index shtml a25 4 http www2 ohchr org english bodies cescr comments htm last visited 05 25 2013 5 Gable The Patient Protection and Affordable Care Act 348 6 Mary Crowley Justice as a Frame for Health Reform Hastings Center Report 38 no 1 2008 3 7 Jan Narveson The Medical Minimum Zero Journal of Medicine Philosophy 36 no 6 2011 563 8 Ronald Duska On the Rights to Health Care and Health Insurance Journal of Financial Service Professionals 62 no 1 2008 14 15 9 Narveson The Medical Minimum 568 121
DARCY NIKOL BRYAN, MD  skills   and capital. Advances in medical technology and interventions have made huge strides in pr...
A PHYSICIAN S PERSPECTIVE 10 Colleen Grogan and Eric Patashnik Between Welfare Medicine and Mainstream Entitlement Medicaid at the Political Crossroads Journal of Health Politics Policy Law 28 no 5 2003 824 11 Ibid 825 12 Ibid 13 Jill Quadagno From Old Age Assistance to Supplemental Security Income The Political Economy of Relief in the South 1935 1972 in The Politics of Social Policy in the United States ed Margaret Weir Ann Shola Orloff and Theda Skocpol Princeton NJ Princeton University Press 1988 14 Sara Rosenbaum Medicaid Expansions and Access to Health Care in Medicaid Financing Crisis Balancing Responsibilities Priorities and Dollars ed Diane Rowland Judith M Feder and Alina Salganicoff Washington DC AAAS Press 1993 15 Douglas Almond Kenneth Chay and David Lee The Costs of Low Birth Weight Quarterly Journal of Economics 120 no 3 2005 1031 32 16 Ibid 1031 17 David Smith and Judith Moore Medicaid Politics and Policy 1965 2007 Journal of Health Politics Policy and Law 34 no 3 2009 419 18 Grogan and Patashnik Between Welfare Medicine and Mainstream Entitlement 831 19 R Shep Melnick The Unexpected Resilience of Means Tested Programs Paper presented at the American Political Science Association Conference Atlanta September 2 5 1999 20 Henry J Kaiser Family Foundation State Health Facts http kff org medicaid state indicator total medicaid spending 21 Smith and Moore Medicaid Politics and Policy 418 19 22 Smith and Moore Medicaid Politics and Policy 421 23 Frank Thompson The Medicaid Platform Can the termites Be Kept at Bay Journal of Health Politics Policy and Law 36 no 3 2011 551 24 Medicaid Growth from Higher Penetration of a Growing Pie in Black Book Obamacare or How I Learned to Stop Worrying Love Managed Care Bernstein Global Wealth Management April 2011 98 http search ebscohost com direct asp db bth jid BMSA scope site 25 Peter Long and Jonathan Gruber Projecting the Impact of the Affordable Care Act on California Health Affairs 30 no 1 2011 65 66 26 Renee Landers and Patrick Leeman Medicaid Expansion Under the 2010 Health Care Reform Legislation The Continuing Evolution of Medicaid s Central Role in American Health Care NAELA Journal 7 no 1 2011 144 45 27 Caryl Carpenter Medicare Medicaid and Deficit Reduction Journal of Financial Service Professionals 65 no 6 2011 27 28 Long and Gruber Projecting the Impact of the Affordable Care Act on California 67 29 OECD Health Data 2006 Statistics and Indicators for 30 Countries http www oecd org health health systems 36960035 pdf 30 Sarah Fontenot Will Health Care Costs Come Down Watch the IPAB Physician Executive Journal of Medical Management 39 no 3 2013 84 122
A PHYSICIAN   S PERSPECTIVE  10.  Colleen Grogan and Eric Patashnik,    Between Welfare Medicine and Mainstream Entitlemen...
DARCY NIKOL BRYAN MD 31 T S Jost The Independent Medicare Advisory Board Yale Journal of Health Policy Law and Ethics 11 no 1 2013 32 Fontenot Will Health Care Costs Come Down 85 33 Jonathan Oberlander Throwing Darts American s Elusive Search for Health Care Cost Control Journal of Health Politics Policy Law 36 no 3 2011 477 34 D Gregory K Sebelius O Hatch H Ford Jr E J Dionne and R Lowry Meet the Press March 7 broadcast transcript March 11 2010 http www msnbc com id 35727484 35 Oberlander Throwing Darts 478 36 Ibid 479 37 Miriam Laugesen Civilized Medicine Physicians and Health Care Reform Journal of Health Politic Policy Law 36 no 3 2011 507 12 38 Joel Kotkin and William Frey The Third California The Golden State s New Frontier Brookings Institution Research Brief March 2007 10 39 Ibid 1 40 Ibid 7 41 Carolyn Mendez Luck Hongjian Yu Ying Ying Meng Mona Jhawar and Steven Wallace Too Many California Adults Are Tipping the Scales at an Unhealthy Weight UCLA Center for Health Policy Research April 1 2005 http escholarship org uc item 06g4b176 42 Robert Wood Johnson Foundation and the University of Wisconsin Population Health Institute County Health Rankings Roadmaps http www countyhealthrankings org app california 2013 rankings outcomes overall by rank 43 Kotkin and Frey The Third California 2 44 Annie Lowrey and Robert Pear Doctor Shortage Likely to Worsen with Health Law New York Times July 28 2012 http www nytimes com 2012 07 29 health policy too few doctors in many us communities html _r 0 45 Kevin Grumbach and Andrew B Bindman Physician Participation in Medi Cal 2008 Sacramento Briefing California Health Care Foundation March 26 2010 46 Barbara Perkins Designing High Cost Medicine Hospital Surveys Health Planning and the Paradox of Progressive Reform American Journal of Public Health 100 no 2 2010 223 47 Lynn Payer Medicine and Culture Revised Edition New York Henry Holt and Company 1996 48 Charles Lockwood Obstetrics and Culture Contemporary OB GYN 52 no 8 2007 8 11 49 N Pattison and L McCowan Cardiotography for Antepartum Fetal Assessment Cochrane Database Syst Review 2 2000 CD001066 50 J A Martin et al Births Final Data for 2004 National Vital Statistics Reports 55 no 1 2006 1 101 51 B E Hamilton J A Martin and S J Ventura Births Preliminary Data for 2005 National Vital Statistics Reports 55 no 11 2006 1 18 52 Robert Kaplan and Michael Porter How to Solve the Cost Crisis in Health Care Harvard Business Review 89 no 9 2011 46 64 123
DARCY NIKOL BRYAN, MD  31.  T. S. Jost,    The Independent Medicare Advisory Board,    Yale Journal of Health Policy, Law ...
A PHYSICIAN S PERSPECTIVE 53 Ibid 54 Michael Porter What Is Value in Health Care NEJM 363 no 26 2010 2477 81 55 Ibid 2478 79 56 Martin Gaynor Are Invisible Hands Good Hands Moral Hazard Competition and the Second Best in Health Care Markets Journal of Political Economy 108 no 5 2000 993 57 Matt Bolch Costs Drive Medicaid s Reality Managed Health Care Executive 23 no 2 2013 27 58 Robert Dowless The Health Care Cost Shifting Debate Could Both Sides Be Right Journal of Health Care Finance 34 no 1 2007 68 59 Bolch Costs Drive Medicaid s Reality 37 60 Etienne Pracht State Medicaid Managed Care Enrollment Understanding the Political Calculus that Drives Medicaid Managed Care Reforms Journal of Health Politics Policy Law 32 no 4 2007 714 61 Mark Duggan Has the Shift to Managed Care Reduced Medicaid Expenditures Evidence from State and Local Level Mandates Journal of Policy Analysis and Management 32 3 2013 505 35 62 Ibid 63 Anna Aizer Janet Currie and Enrico Moretti Does Managed Care Hurt Health Evidence from Medicaid Mothers Review of Economics and Statistics 89 no 3 2007 385 99 64 Paul Ginsburg Achieving Health Care Cost Containment Through Provider Payment Reform That Engages Patients and Providers Health Affairs 32 no 5 2013 931 65 Fabrice Jotterand The Hippocratic Oath and Contemporary Medicine Dialectic Between Past Ideals and Present Reality Journal of Medicine and Philosophy 30 2005 112 66 Ibid 116 67 Peter Cunningham and Jack Hadley Effects of Changes in Incomes and Practice Circumstances on Physicians Decisions to Treat Charity and Medicaid Patients Milbank Quarterly 86 no 1 2008 94 Ha Tu Losing Ground Physician Income 1995 2003 Medical Benefits 23 no 17 2006 4 5 68 Sandra Decker Medicaid Physician Fees and the Quality of Medical Care of Medicaid Patients in the USA Review of Economics of the Household 5 no 1 2007 98 69 Ibid 96 70 Anna Sommers Julia Paradise and Carolyn Miller Physician Willingness and Resources to Serve More Medicaid Patients Perspectives From Primary Care Physicians Medicare Medicaid Research Review 1 no 2 2011 E1 E18 71 Peter Cunningham and Len Nichols The Effects of Medicaid Reimbursement on the Access to Care of Medicaid Enrollees A Community Perspective Med Care Res Rev 62 2005 678 72 Ibid 693 73 B G Druss et al Comparing the National Economic Burden of Five Chronic Conditions Health Affairs 20 no 6 2001 233 41 74 Dylan Roby Gerald Kominski and Nadereh Pourat Assessing the Barriers to 124
A PHYSICIAN   S PERSPECTIVE  53.  Ibid. 54.  Michael Porter,    What Is Value in Health Care ,    NEJM 363, no. 26  2010  ...
DARCY NIKOL BRYAN MD Engaging Challenging Populations in Disease Management Programs The Medicaid Experience Dis Manage Health Outcomes 16 no 6 2008 421 28 75 Cunningham and Hadley Effects of Changes in Incomes 91 123 76 Ibid 118 77 Erika Cheng and David A Kindig Disparities in Premature Mortality Between Highand Low Income US Counties Prev Chronic Dis 9 2012 110120 see also Ralph L Keeney Mortality Risks Induced by Economic Expenditures Risk Analysis 10 no 1 1990 78 Diane Rittenhouse Paula Braveman and Kristen Marchi Improvements in Prenatal Insurance Coverage and Utilization of Care in California An Unsung Public Health Victory Maternal and Child Health Journal 7 no 2 2003 75 76 79 US Census Bureau Statistical Abstract of the United States 2000 Washington DC US Department of Health and Human Services 1980 80 Rittenhouse Braveman and Marchi Improvements in Prenatal Insurance Coverage 76 81 State Health Watch January 2011 11 12 ISSN 1074 4754 82 Paula Braveman et al Barriers to Timely Prenatal Care among Women with Insurance The Importance of Prepregnancy Factors Obstetrics Gynecology 95 2000 874 83 Melissa Nothnagel Kristen Marchi Susan Egerter and Paula Braveman Risk Factors for Late or No Prenatal Care Following Medicaid Expansions in California Maternal and Child Health Journal 4 no 4 2000 251 59 84 Ibid 256 85 Ibid 257 86 David A Kindig and Erika R Cheng Even as Mortality Fell in Most US Counties Female Mortality Nonetheless Rose in 42 8 Percent of Counties from 1992 to 2006 Health Affairs 32 no 3 2013 451 58 87 Ibid 453 55 88 Ibid 455 89 David Kindig Paul Peppard and Bridget Booske How Healthy Could a State Be Public Health Reports 125 2010 161 90 http www countyhealthrankings org about project rankings background 91 Steven Woolf and Paula Braveman Where Health Disparities Begin The Role of Social and Economic Determinants And Why Current Policies May Make Matters Worse Health Affairs 30 no 10 2011 1856 92 Robert Evans and Gregory Stoddart Producing Health Consuming Health Care Soc Sci Med 31 no 12 1990 1352 53 93 Peter Muening et al The Relative Health Burden of Selected Social and Behavioral Risk Factors in the United States Implications for Policy Am J Public Health 100 no 9 2010 1762 94 Ibid 95 Woolf and Braveman Where Health Disparities Begin 1853 96 Gable The Patient Protection and Affordable Care Act 341 97 Ibid 346 125
DARCY NIKOL BRYAN, MD  Engaging Challenging Populations in Disease Management Programs  The Medicaid Experience,    Dis Ma...
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PART 4 MEDICAID S HEALTH CARE FAILURES AND POSSIBLE REFORMS
PART 4   MEDICAID   S HEALTH CARE FAILURES AND POSSIBLE REFORMS
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CHAPTER 7 REFORMING MEDICAID JAMES C CAPRETTA T he Medicaid program today bears little resemblance to the program Congress thought it was creating nearly a half century ago The priority for the drafters of the 1965 amendments to the Social Security Act was creating health insurance for the elderly Medicare Medicaid received far less attention 1 The drafters thought they were providing federal structure and uniformity as well as some funding for the many state programs long in existence that were already providing indigent care The congressional authors of the legislation were not aware that what they were setting in motion was a program that would become the largest entitlement by enrollment in the United States Today Medicaid costs federal and state taxpayers 440 billion annually and serves about 70 million people 2 Medicaid s financing and programmatic problems are rooted in its original legislative design As a shared federal state program it is financed partly by the federal government and partly by the state resulting in split political accountability State officials often blame the federal government for imposing costly mandates in Medicaid even as federal officials and agencies increasingly blame the states for 129
CHAPTER 7   REFORMING MEDICAID JAMES C. CAPRETTA  T  he Medicaid program today bears little resemblance to the program Con...
REFORMING MEDICAID using the program as a means of tapping federal taxpayers to solve their budgetary problems The method by which Medicaid s costs are assigned to the federal and state governments a state specific federal match rate is a primary source of the program s perverse incentives On average the federal matching rate is 57 percent of state Medicaid costs meaning the federal government covers 0 57 of every 1 00 in state initiated Medicaid spending Because there is no upper limit on federal Medicaid funding states can reduce their budgetary costs if they are able to move programs traditionally financed with state only funds under the Medicaid programmatic umbrella thus drawing partial federal support Not surprisingly this has been a common practice among the states for many years 3 For more on states budgetary incentives see chapters 1 and 4 pages 9 and 65 Further the Medicaid matching formula undermines the incentive for spending discipline at the state level The shared financing of Medicaid means that states can initiate new spending in Medicaid and have it partially financed by federal taxpayers but the flip side is that state initiated Medicaid spending cuts must also be shared with federal taxpayers So for instance in a state where the federal government is financing 60 percent of Medicaid spending the governor and state legislators face the unattractive prospect of keeping only 1 in savings for every 2 50 in Medicaid spending cuts they can identify and implement The other 1 50 in savings is returned to the federal treasury This kind of formula is a major disincentive to costcutting by state politicians Widespread recognition of these and other shortcomings in Medicaid have led to near continuous calls to reform the program both at the federal and state levels of government To date these reform efforts have not yielded fundamental transformation of the program 130
REFORMING MEDICAID  using the program as a means of tapping federal taxpayers to solve their budgetary problems. The metho...
JAMES C CAPRETTA THE WA I V ER OPTION Medicaid rests on an uneasy federal state relationship The federal government finances more than half of the program but the states initiate the spending Not surprisingly because federal taxpayers are on the hook for a substantial and unlimited portion of the costs the federal government has not hesitated to steadily impose more and more federal controls over the program s basic operations through legislative as well as regulatory changes These changes have mainly come in the form of new mandates requirements that compel states to operate their Medicaid programs in conformance with an ever expanding list of federal rules These mandates affect everything from what states must provide in terms of covered services to minimum payments to providers to the categories of beneficiaries that must be made eligible for Medicaid coverage For instance from the beginning the Medicaid statute required certain kinds of preventive services be provided to eligible children but the definition of what is required was substantially broadened in legislation enacted in 1989 4 Every state must conform to that one national rule The impulse for the growing federal role in the program is of course rooted in part in the expectation that whoever is paying the bills or the biggest part of them should have a say in how the money is spent But probably even more important has been the straightforward impulse to expand benefits and services to low income populations That has been a motivation for politicians in both parties For their part the states have often resisted the proposals for new mandates and required coverage expansions considered by Congress and the Department of Health and Human Services HHS but many expansions have occurred nonetheless 5 The desire to expand Medicaid s reach to more and more people and to cover more and more services has proven to be far more powerful than any hesitancy about violating the terms of the original understanding of Medicaid which was that the federal government would provide the overall structure for the program but the states would have the biggest say in who is entitled and to what benefits 131
JAMES C. CAPRETTA  THE WA I V ER OPTION  Medicaid rests on an uneasy federal   state relationship. The federal government ...
REFORMING MEDICAID The tension that the steady increase of federal control over Medicaid has created in the relationship with the states has manifested itself in several ways but most especially in the rapid increase in stateinitiated waiver requests The Social Security Act comprises the set of laws that addresses the Social Security program as well as Medicare and Medicaid In Section 1115 of that act Congress delegated to HHS the authority to waive certain requirements under the act in order to allow demonstrations of new approaches to implementing social welfare programs including Medicaid In addition the Medicaid law itself includes waiver authority allowing states to apply to HHS to utilize more managed care approaches to delivering Medicaid services and thus exclude some doctors and hospitals from the Medicaid network of providers States can also seek waivers to use Medicaid funds to pay for home and community based long term care services instead of only using Medicaid to pay for nursing home care The use of waivers to run state Medicaid programs has become widespread Indeed anytime a state decides to pursue large scale changes to how they run Medicaid it is the norm not the exception to embed those changes in the context of a waiver request to the federal government According to the database that HHS has made available online 381 current waiver programs of all types have been approved by HHS and are in operation in the states of which 41 are existing Section 1115 waivers 6 Section 1115 waivers give the secretary of HHS the authority to initiate experimental pilot or demonstration projects that promote the objectives of the Medicaid and CHIP programs The purpose of these demonstrations which give States additional flexibility to design and improve their programs is to demonstrate and evaluate policy approaches 7 Approximately 24 waiver requests are now pending at HHS 8 The statute intends that the federal government and the states will use waivers to test new concepts for a period of years followed by an evaluation If a test falls short of expectations the waiver would be 132
REFORMING MEDICAID  The tension that the steady increase of federal control over Medicaid has created in the relationship ...
JAMES C CAPRETTA expected to be discontinued Similarly successes would presumably influence national policy making for the other states The reality is very different States have used waivers not so much to test new ideas but to manage their programs outside of the constraints of some statutory provisions In some notable cases states have used Section 1115 waivers to pursue changes that constitute fundamental reform of how Medicaid operates or how Medicaid fits into the broader health system Three state initiated waivers from the past several years are noteworthy in this regard and provide good examples of the creative use of the Section 1115 waiver authority Indiana requested a waiver to allow persons just above the normal Medicaid income eligibility levels to enroll in a special insurance program featuring the use of health savings account HSA style spending arrangement The idea was to give these mainly uninsured residents of the state an insurance plan with out of pocket financial protection and also a personally owned spending account to cover the cost of services below the relatively high for Medicaid insurance deductible Indiana s governor at the time Republican Mitch Daniels pushed for the waiver on the grounds that it would expand coverage to many thousands of the uninsured in the state by using an approach that would promote consumer directed health care and costconscious consumption of services 9 Medicaid funding was used both to subsidize the higher deductible insurance and to place funds in the HSA accounts for use by the enrollees Indiana s original waiver was approved in 2007 By all accounts the Indiana experiment in HSAs worked very well for state residents Enrollment exceeded 45 000 in just the first two years of the program and the cost and health experience were very positive 10 According to an evaluation conducted by Mathematica Policy Research the low income participants in the Indiana initiative found the HSA approach attractive with large percentages making contributions to their accounts to build assets for future health needs Nonetheless Indiana has been forced to engage in a protracted negotiation with HHS to get the waiver extended In early September 133
JAMES C. CAPRETTA  expected to be discontinued. Similarly, successes would presumably influence national policy making for...
REFORMING MEDICAID 2013 the Centers for Medicare and Medicaid Services CMS finally granted a one year extension for the Indiana Medicaid waiver program 11 And yet despite the one year reprieve the long term future for the program remains very much uncertain In Rhode Island in 2009 then governor Donald Carcieri a Republican proposed to fundamentally transform the Medicaid program in the state by converting the federal contribution to the state program into a global cap on the program Many viewed this proposal as a state initiated version of a federal block grant Instead of paying for a fixed percentage of Rhode Island s Medicaid costs Governor Carcieri proposed that the federal government provide to the state a fixed total amount of federal funding regardless of the state s spending experience In return for giving the federal government budgetary certainty the state asked for substantial new flexibility to manage the benefits and populations covered by the program without regard to many federal rules The administration of President George W Bush approved the waiver in early 2009 The Rhode Island waiver provoked strong negative reaction from those who thought it gave Rhode Island too much authority to unilaterally manage the program 12 Supporters championed the proposal as a test of the Medicaid block grant concept Early evaluations of the program showed that it largely met the expectations of Rhode Island officials According to an independent assessment the flexibility Rhode Island gained under the waiver allowed the state to generate significant savings including 36 million over three years in reduced nursing home costs 13 In Massachusetts an entirely different approach to reform was pursued by then governor Mitt Romney in 2006 He proposed a waiver that would allow the state of Massachusetts to move federal funding for what are known as disproportionate share hospitals DSH into a new subsidized insurance scheme for persons not eligible for Medicaid It was well known at the time that Massachusetts was in danger of losing the federal DSH funding entirely because of the illegitimate mechanism used to pay for the state s portion of the 134
REFORMING MEDICAID  2013, the Centers for Medicare and Medicaid Services  CMS  finally granted a one-year extension for th...
JAMES C CAPRETTA cost To prevent the loss of funding Governor Romney a Republican worked with the state s Democratic legislature to propose a waiver that eventually became the model for President Obama s national reform legislation In addition to moving the federal DSH funding into an insurance subsidy program Massachusetts enacted an individual mandate on state residents thus requiring everyone in the state to secure government approved health coverage It also created the Connector through which some state residents would use their new state subsidy for health insurance to purchase coverage from among competing private insurance plans The Massachusetts Medicaid waiver of 2006 was the most consequential waiver ever approved by the federal government The Obama administration has argued forcefully that its adoption on a bipartisan basis by Massachusetts state politicians should have led Republicans at the national level to embrace the Patient Protection and Affordable Care Act ACA 14 which shared some common elements with the Massachusetts program But many in the GOP countered that the national law has given far more sweeping powers to the federal government than were handed to the Massachusetts state government under the 2006 waiver Moreover it is a very different matter to enact a state program from which other states can differ than to enact one national program that all states must adopt Even so it is undeniable that the approval of the Massachusetts waiver was an important step along the way to enactment of the sweeping national legislation 15 BU DGET N EU TR A LIT Y A N D THE WA I V ER N EGOTI ATION PROCESS The federal government has approved scores of waiver requests for the states over the past four decades but some have not been approved and more still have only been approved after a lengthy and oftentimes contentious negotiation between federal and state officials over the content of the waiver request 16 135
JAMES C. CAPRETTA  cost. To prevent the loss of funding, Governor Romney, a Republican, worked with the state   s Democrat...
REFORMING MEDICAID To some extent ideology has played a role in the attitude of various administrations toward state Medicaid waiver requests Republican administrations have tended to look favorably on requests to use more private insurance options to cover the Medicaid population Democratic administrations have favored approaches that bring into Medicaid larger numbers of low income residents But by far the most important consideration in any significant waiver request is the money More specifically the waiver requests from the states are assessed to determine whether or not they are budget neutral meaning they are assessed to determine whether the federal government would pay more to the state under the waiver than it would without the waiver Not surprisingly this is the source of frequent disagreements between the states and the federal government The concept of budget neutrality in Medicaid waiver assessments dates back to the early 1980s Prior to that time HHS could approve state Medicaid requests under Section 1115 of the Social Security Act without regard to the waivers impact on federal spending The statute never mentions budget neutrality as a requirement for federal approval of the demonstration programs As HHS approved more and more requests by the states to waive certain Medicaid statutory provisions the White House Office of Management and Budget OMB became concerned that the state programs being approved by HHS were actually costing the federal government substantially more than the regular Medicaid program In 1983 early in the Reagan administration OMB and HHS came to an agreement that all future Section 1115 waivers must be budget neutral to the federal government over the life of the demonstration 17 This agreement also gave OMB the authority to reject demonstration requests from the states that did not meet the test of neutrality Since that time OMB has played a central role in virtually all federal state negotiations over significant waiver requests The budget neutrality test implies that the administration can apply an objective measure of financial rigor to assess the merits of state waiver requests Unfortunately the reality is that assessing budget 136
REFORMING MEDICAID  To some extent, ideology has played a role in the attitude of various administrations toward state Med...
JAMES C CAPRETTA neutrality entails far more subjective judgments than any of the participants would care to admit The problem begins with the fact that the federal government does not maintain a 50 state baseline of Medicaid costs 18 The actuaries employed by CMS create a federal Medicaid baseline at least twice a year with projections going out 10 years But that baseline reflects aggregate federal Medicaid expenditures not state by state spending So when a significant waiver request is made by a state the actuaries have to construct a special state only baseline estimate There are no definitive rules for doing this For instance what is the future growth rate of Medicaid expenditures in a given state Is it the same as the assumed national trend rate What if the state has had slower growth in recent years or a changing demographic profile Should that be factored into the assessment And what about state claims that the waiver program will operate more efficiently than the existing program or improve the health status of the served population and thus lower future costs Is there validity to those claims These are the typical questions at the heart of the federal state negotiations over waivers And when there is so much room for judgment involved in assessing what is or is not budget neutral the decision to approve or disapprove a waiver is inevitably moved from the civil service level to the political level Thus the boundaries of objective budgetary assessment are moved into the realm of more ambiguous political negotiation With so much money at stake states become heavily invested in the process They lobby HHS and the White House vigorously they make calls to the president s political advisors Congressional delegations become involved The result is that the waiver approval process is a high stakes political affair that has the feel of a legislative negotiation rather than consideration based on objective measures of a temporary test of a new idea as the statute warrants It follows too that this kind of process leads to strong suspicions that the politically connected get the best deals States with strong political connections to the White House are assumed to receive more 137
JAMES C. CAPRETTA  neutrality entails far more subjective judgments than any of the participants would care to admit. The ...
REFORMING MEDICAID favorable judgments on how to calculate the state specific Medicaid spending baseline and thus provide more funding to those states under their waiver requests This widespread perception of favoritism only further incents states to treat the entire endeavor as a highly politicized process which means hiring a team of expensive lobbyists and using pressure from elected lawmakers from the state to pressure the administration to grant the waiver request The subjectivity of the Medicaid waiver approval process raises questions of fundamental fairness Why should taxpayers in one state receive more favorable treatment than those in another state based on an idiosyncratic waiver approval process For this and other reasons a better approach to fundamental Medicaid reform can be found in proposals to remake the program through federal legislation STAT U TORY R EFOR M OPTIONS AT THE FEDER A L LEV EL An effective Medicaid reform at the federal level would first and foremost address the fundamental flaw in Medicaid s current design the matching formula used to establish the federal state split on Medicaid costs As stated previously this approach to financing Medicaid undermines spending discipline and causes budgetary problems for the federal government as well as the states One approach to reform would be to convert the federal contribution to the states into a fixed federal block grant that would not be altered based on additional state spending The idea would be to provide budgetary certainty to the federal government and the states and to provide strong incentives to the states to manage the federal funding prudently Under a block grant cost overruns at the state level would be financed entirely by state taxpayers not the federal government Conversely the federal contribution to a state would not decrease if the state found ways to cut Medicaid costs All of the savings from rooting out waste and efficiency would accrue to state 138
REFORMING MEDICAID  favorable judgments on how to calculate the state-specific Medicaid spending baseline, and thus provid...
JAMES C CAPRETTA taxpayers This is how the state children s health insurance program has been structured since enactment in 1997 The key issue in converting to a block grant is establishing the basis by which the federal government will make payments to the states One option would be to examine historical Medicaid spending levels by the federal government in the various states over a preceding number of years such as perhaps the three most recent years The first year of the block grant could then be calculated as the average of federal Medicaid spending in the state per year during that period of time inflated to the year in question by the national Medicaid spending growth rate Once the first year is settled the question becomes how to inflate the federal Medicaid block grant amounts in future years The indexing options include using the consumer price index CPI which historically is well below medical inflation the growth rate of the national economy as measured by gross domestic product GDP or perhaps a measure of national or regional health spending growth The decision on indexing is highly consequential because alternative approaches can result in large differences in federal spending over time If the block grant is pursued in part to help ease the nation s severe longterm budgetary challenges then indexing the block grant amounts to something below the historical rate of growth for Medicaid can produce significant savings estimates especially over the long term The budget resolution that passed the US House of Representatives in March 2013 assumed Medicaid was converted to a block grant and indexed to the CPI plus population growth in the states a rate well below the historical rate of Medicaid spending inflation and well below what the Congressional Budget Office CBO assumes will occur absent a change in the legislation Consequently the Housepassed budget s Medicaid plan would substantially reduce federal costs over the coming decade 19 Using historical rates of spending to establish the initial state block grant amounts locks into the block grant whatever irrational disparities in federal support exist today among the states Some 139
JAMES C. CAPRETTA  taxpayers. This is how the state children   s health insurance program has been structured since enactm...
REFORMING MEDICAID proposals try to correct for large gaps between states by indexing the block grant amounts at differential rates For instance low cost states might be indexed at a slightly higher than average rate whereas high cost states could be indexed at a rate below the national average Proposals that make these kinds of adjustments necessarily generate a great deal of attention from the states and their representatives in Congress The danger is that attempting to redistribute Medicaid funding among the states while also reforming the program could create so much political opposition that the reform fails Consequently reformers may instead want to enact a reform first that changes the nature of the federal state financial relationship based on historical patterns of federal spending per state before addressing approaches to narrowing gaps among the states Opponents of the block grant concept argue that it will necessarily result in a reduction in services for vulnerable populations But that is far from certain the current program with open ended federal matching payments provides strong incentives to the states to move as much spending as possible under the Medicaid umbrella and little incentive to carefully scrutinize expenditures With a block grant the states would have strong incentives to eliminate waste without undermining coverage for those who truly need it In 1996 similar arguments were made about the block granting of welfare funding with predictions that it would lead to significant hardship for the program s enrollees What happened instead is that the states reviewed who was on the cash assistance program and quickly found that many of them were capable of entering the workforce and improving their household incomes from wages instead of government assistance By 2000 the cash welfare rolls had fallen by about half even as the population in the bottom fifth of the income distribution experienced substantial gains in their real incomes 20 Health coverage is more complicated than cash welfare but there is every reason to expect that substantial inefficiency exists in Medicaid and that a block grant would provide the incentive to find and eliminate it 140
REFORMING MEDICAID  proposals try to correct for large gaps between states by indexing the block grant amounts at differen...
JAMES C CAPRETTA Still concerns about the effect that a block grant might have on health services for the vulnerable has led to proposals that mitigate against some of the financial risks a block grant would entail The most prominent example of such a proposal is per capita caps Under per capita caps the federal government would establish for each state a per person payment based on the main eligibility categories in the Medicaid program the elderly the blind and disabled nondisabled adults and children The federal government would then make payments to the states based on the number of Medicaid enrollees in each of these categories The per capita payment would be based on historical spending rates for the various categories of beneficiaries in each state and again would be indexed to a predetermined growth rate 21 Per capita caps in Medicaid would have the same advantages as a block grant in that the states would have strong incentives to use the federal funding wisely The amount of the federal payment per person would be the same regardless of how much the state spent on each enrollee The only difference with the block grant is that the states would not be at risk for increased enrollment in the program because the per capita payments would be made for all enrollees in the program including those who might not have been expected to sign up and thus were excluded from the block grant formula This could be important in times of slow economic growth or during a recession when Medicaid enrollment typically surges Perhaps most important per capita caps have enjoyed bipartisan support in the past In 1995 and 1996 the Clinton administration proposed Medicaid per capita caps as part of a larger balanced budget plan That proposal was explicitly endorsed by 46 Senate Democrats in a letter to the president in December 1995 22 Both the block grant and per capita caps would remove from the program the distorted incentives that flow from today s matching rate approach to Medicaid financing They would also free up the states to pursue reforms that until now have been difficult to implement in Medicaid because of federal concerns Specifically states that would 141
JAMES C. CAPRETTA  Still, concerns about the effect that a block grant might have on health services for the vulnerable ha...
REFORMING MEDICAID like to pursue more market driven Medicaid reform could move directly to convert the program from what might be called a defined benefit model of insurance to one based on defined contributions Instead of entitling beneficiaries to a set of services states could give Medicaid participants a fixed level of support a defined contribution payment and then allow the Medicaid beneficiaries to use that support to pick from among a number of competing insurance options The Indiana approach of using the defined contributions to fund an HSA like account could be part of the reform This approach to state driven Medicaid reform would use competition and consumer choice to hold down costs instead of the unrealistically low payment rates that are now used by states to cut payments to doctors and hospitals Nonelderly and disabled beneficiaries would be free to choose from among competing insurance options which would create pressure on the insurance plans to provide better access to care than is provided under today s Medicaid program Under this approach states would need to ensure the defined contribution was adequate to get reliable insurance but it would also create pressure to hold down costs because the Medicaid participants could keep the savings from enrolling in lower premium plans States could also pursue a defined contribution approach for their elderly and disabled populations The purpose would not be to finance insurance enrollment but to provide resources for the direct purchase of needed long term support services One approach would be to establish a maximum contribution based on a severely disabled person needing extensive support Persons with lesser disabilities would get a fraction of the maximum amount commensurate with their needs The recipients and their families and caregivers would then use the fixed level of support from Medicaid to secure services from a competing list of approved service providers This approach would foster strong price competition and allow the recipients and their families to target their resources on their most significant needs 23 A main objective of this type of reform for the elderly and disabled would be to reduce the use of expensive nursing home care 142
REFORMING MEDICAID  like to pursue more market-driven Medicaid reform could move directly to convert the program from what...
JAMES C CAPRETTA by improving the services available for those who remain in the community However some state residents will still require nursing home assistance The cost of nursing home care could be provided outside of the defined contribution context with the state paying directly for those services perhaps on contracts awarded to nursing homes with the higher quality indicators and reasonable costs A federal move toward block grants or per capita caps would provide much greater budgetary control at the federal level States could achieve a similar level of enhanced budgetary control by moving to a definedcontribution approach Instead of unpredictable and open ended benefit commitments a state could provide fixed levels of support to program participants Opponents will say this is an unfair shift of risk onto the program s participants But a shift to defined contribution payments would not result in reduced benefits if it brings about new levels of efficiency and productivity in the provision of services Indeed the whole point of such a reform is to foster competition and innovation that improve the quality of choices for the program s enrollees not worsen them And there is strong evidence from other market driven models like the Medicare drug benefit that competition and choice will have exactly this effect on costs in Medicaid 24 CONCLUSION The Medicaid program is now a dominant part of American health care but there has always been uneasiness about its design dating all the way back to its enactment in 1965 Costs have grown so much that they threaten to push federal and state budgets past the breaking point Although millions of Americans rely on Medicaid there is much evidence that the program falls well short of the quality care that the population deserves The fundamental problem in Medicaid is that neither the federal government nor the states are fully in charge Those who favor more centralized control over the nation s health system would like to resolve the tension in Medicaid by federalizing more and more 143
JAMES C. CAPRETTA  by improving the services available for those who remain in the community. However, some state resident...
REFORMING MEDICAID aspects of the program That is why the health care law passed in 2010 required 100 percent federal funding for the first three years of the anticipated expansion However to date less than half of the states have adopted the expansion despite the promise of full but temporary federal financing Based on the program s long history many state governors and legislators are wary of setting in motion another long term spending commitment within Medicaid that could burden future state taxpayers Many state governors are also generally opposed to the 2010 health care law and would prefer to replace it with an approach that would elicit more bipartisan support Some states have pushed back against the steady federalization of Medicaid by pursuing various waiver approaches But these waiver plans must still be approved by the federal government which can be a large political exercise as well as a budget exercise leaving states in the position of investing time and resources into securing Washington s approval of their plans A more permanent and stable approach to reform would fundamentally transform the nature of the federal state relationship Instead of micromanaging Medicaid the federal government could provide a fixed level of support through Medicaid with the states deciding how to spend those federal funds as well as state resources to help their low income populations secure the health services they need This kind of transformation of Medicaid could come with strong accountability provisions for the states including measures of the health status of their vulnerable populations as well as estimates of insurance coverage rates States would then have the freedom to manage the programs to improve the lives of their citizens and could be held accountable by state voters NOTES 1 Judith G Moore and David G Smith Legislating Medicaid Considering Medicaid and Its Origins Health Care Financing Review 27 no 2 Winter 2005 2006 http www cms gov Research Statistics Data and Systems Research HealthCareFinancingReview downloads 05 06Winpg45 pdf 2 Congressional Budget Office Medicaid Spending and Enrollment Detail for CBO s 144
REFORMING MEDICAID  aspects of the program. That is why the health care law passed in 2010 required 100 percent federal fu...
JAMES C CAPRETTA May 2013 Medicaid Baseline May 2013 http www cbo gov sites default files cbofiles attachments 44204_Medicaid pdf 3 For instance in 2010 the state of Connecticut moved a state funded and capped health insurance assistance program for low income adults without children under Medicaid in order to secure federal matching funds Ironically the governor at the time M Jodi Rell argued against the shift on the basis that it would be more difficult to control enrollment once the program became part of a broader Medicaid entitlement See Keith M Phaneuf Bill Cuts Most of This Year s Deficit Connecticut Mirror April 15 2010 http www ctmirror com story 2010 04 14 bill cuts most years deficit Between 2010 and 2013 enrollment in the program grew from 45 000 to 86 000 See Keith M Phaneuf Malloy Takes to Air to Rebut Budget Critics Connecticut Mirror May 6 2013 http www ctmirror org story 2013 05 06 malloy takes air rebut budget critics 4 Commonwealth Fund EPSDT An Overview September 2005 http www commonwealthfund org media Files Publications Data 20Brief 2005 Sep EPSDT 20 20An 20Overview 893_EPSDT_overview 20pdf pdf 5 See table 2 of Jonathan Gruber Medicaid Working Paper 7829 National Bureau of Economic Research Cambridge MA August 2000 http www nber org papers w7829 pdf for a list of the many incremental legislative expansions of the program from 1965 to 2000 6 The HHS waiver database is available at http www medicaid gov Medicaid CHIP Program Information By Topics Waivers Waivers html 7 http www medicaid gov Medicaid CHIP Program Information By Topics Waivers 1115 Section 1115 Demonstrations html 8 As of July 2013 For a current list of pending waivers see http www medicaid gov Medicaid CHIP Program Information By Topics Waivers 1115 Pending 1115 Demonstration Applications html 9 See the waiver request letter from Governor Mitchell E Daniels Jr to Secretary Michael O Leavitt February 28 2007 http svcinc org PDF Waiver22807 pdf 10 Timothy K Lake Vivian L H Byrd and Seema Verma Healthy Indiana Plan Lessons for Reform Issue Brief No 1 Mathematic Policy Research Inc Princeton NJ January 2011 http www mathematica mpr com publications PDFs health healthyindianaplan_ib1 pdf 11 Family and Social Services Administration State of Indiana Background on the Healthy Indiana Plan Waiver FSSA Backgrounder September 3 2013 http www in gov fssa hip files BACKGROUND_ON_THE_HEALTHY_INDIANA_PLAN _WAIVER pdf 12 Jesse Cross Call and Judith Solomon Rhode Island s Global Waiver Not a Model for How States Would Fare under a Medicaid Block Grant Washington DC Center on Budget and Policy Priorities March 2011 http www cbpp org files 3 16 11health2 pdf 13 The Lewin Group An Independent Evaluation of Rhode Island s Global Waiver December 2011 http www ohhs ri gov documents documents11 Lewin_report_12_6_11 pdf 14 Patient Protection and Affordable Care Act Pub L No 111 148 124 Stat 119 2010 codified as amended sections of 42 U S C 15 Jonathan Gruber a key advisor to both the Massachusetts and national reform efforts has repeatedly made the argument that the Massachusetts plan paved the way for the national program and that if Massachusetts had not gone first the national effort in all likelihood would not have succeeded See Romney Defends Mass Health Care 145
JAMES C. CAPRETTA  May 2013 Medicaid Baseline,    May 2013, http   www.cbo.gov sites default files  cbofiles attachments 4...
REFORMING MEDICAID Law Boston Globe March 30 2010 http www boston com news health articles 2010 03 30 romney_defends_massachusetts_health_care_law page full Governor Mitt Romney maintained in the 2012 presidential campaign that the Massachusetts plan was suited only to Massachusetts and would not work nationally See Avik Roy Romney s Revenge Romney said His Bay State Health Reforms Weren t Necessarily Suited to Other States Few Listened National Review Online June 18 2013 http www nationalreview com article 351197 romneys revenge avik roy 16 Denials of Medicaid waiver requests are often not the end of the story States frequently ask permission to make changes in their Medicaid program are denied and then come back to HHS with an amended request that might meet approval This process gives HHS a great deal of power to steer states away from policies that are viewed unfavorably by the federal bureaucracy without issuing a full disapproval of an entire waiver request See for instance Michelle Oxman Why CMS Refused Florida Medicaid Reform Waiver Law and Health Blog Wolters Kluwer February 21 2012 http health wolterskluwerlb com 2012 02 why cms refused florida medicaid reform waiver 17 Cynthia Shirk Shaping Medicaid and SCHIP Through Waivers The Fundamentals Background Paper No 64 National Health Policy Forum Washington DC July 2008 http www nhpf org library background papers BP64_MedicaidSCHIP Waivers_07 22 08 pdf 18 A baseline is a budget projection based on current law and current policy The concept is intended to create a set of figures from which alternative policies including law changes can be measured For a longer discussion of the concept of budget baselines see Timothy J Muris The Uses and Abuses of Budget Baselines in The Budget Puzzle Understanding Federal Spending John F Cogan Timothy J Muris and Allen Schick Stanford CA Stanford University Press 1994 19 House Budget Committee The Path to Prosperity A Responsible Balanced Budget March 2013 http budget house gov uploadedfiles fy14budget pdf 20 See Pamela J Loprest How Has the TANF Caseload Changed Over Time Brief 8 Urban Institute Washington DC March 2012 http www acf hhs gov sites default files opre change_time_1 pdf and Congressional Budget Office Changes in the Economic Resources of Households with Low Income Children May 2007 http www cbo gov sites default files cbofiles ftpdocs 81xx doc8113 05 16 low income pdf 21 Fred Upton and Orrin Hatch Making Medicaid Work Protect the Vulnerable Offer Individualized Care and Reduce Costs May 2013 http energycommerce house gov sites republicans energycommerce house gov files analysis 20130501Medicaid pdf 22 See Cong Rec 19185 vol 141 no 207 December 22 1995 http www gpo gov fdsys pkg CREC 1995 12 22 pdf CREC 1995 12 22 pt1 PgS19185 pdf 23 For a more detailed description of this concept see James C Capretta et al Assuring a Future for Long Term Care Services and Supports in Texas Austin TX Texas Public Policy Foundation December 2012 http www texaspolicy com sites default files documents 2012 12 RR09 AssuringFutureLongTermCareServices CHCP Capretta pdf 24 For a discussion of the success of the Medicare drug benefit see James C Capretta Congress Should Not Undermine What Works in the Medicare Drug Benefit Web Memo 3360 Heritage Foundation Washington DC September 9 2011 http www heritage org research reports 2011 09 medicare drug benefit model for broader healthcare reform 146
REFORMING MEDICAID  Law,    Boston Globe, March 30, 2010, http   www.boston.com news health  articles 2010 03 30 romney_de...
CHAPTER 8 HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM THOMAS P MILLER T he Patient Protection and Affordable Care Act ACA 1 could put as many as 16 million to 17 million more low income Americans into Medicaid and the related Children s Health Insurance Program CHIP coverage over the next decade but without making significant structural changes in how the Medicaid program operates 2 Although those initial coverage estimates made in 2010 have been revised downward in light of a Supreme Court decision in June 2012 that essentially made the Medicaid expansion a state option 3 additional enrollment in Medicaid remains a key part of insurance coverage expansion plans under the ACA which begin primarily in 2014 Even before this latest effort to expand the program for lowincome Americans is implemented Medicaid was already nearing a fiscal and operational crisis State budgets were buckling under the weight of their share of Medicaid program costs Medicaid spending increasingly crowded out other important areas of state spending such as education and investments in rebuilding local infrastructure The networks of physicians and hospitals willing to see large 147
CHAPTER 8   HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM THOMAS P. MILLER  T  he Patient Protection and Affordable Care Act ...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM numbers of Medicaid patients continued to shrink and the quality of care provided to Medicaid enrollees was quite disappointing to say the least 4 Medicaid s low rates of reimbursement for health care providers also led to efforts to shift at least some of those extra costs to private health insurance premiums 5 At the same time the Medicaid program remained a fertile ground for fraudulent claims for reimbursement 6 Medicaid s spending incentives often operate at cross purposes in stimulating demand while restricting supply Its open ended match rate incentives for federal financial support the federal medical assistance percentage or FMAP in which each dollar of state Medicaid spending is matched by at least one dollar or more from federal taxpayers discourage state efforts to control such spending Medicaid s comprehensive list of covered benefits with minimal cost sharing by beneficiaries further adds to increased use of health care services On the other hand even states benefiting from matching federal funds and creative ways to maximize them beyond their nominal percentage levels can run up against their own budget limits when dealing with periods of economic downturn and managing competing claims on their resources Their most common policy response has been to lower payments to Medicaid providers even further below their actual costs to supply covered services and products 7 Cutbacks in optional Medicaid benefits and limits on eligibility offer less immediate savings to state policy makers They also are more transparent to voters and Medicaid beneficiaries and hence less politically attractive More recently the ACA s new requirements for maintenance of effort within state Medicaid programs have further limited shortterm economizing options mostly to reductions in provider reimbursement rates The overall effect of this push pull dynamic in Medicaid s conflicting financial incentives is to increase demands on a program that is already struggling to do more with less and failing at both tasks The inevitable result of hollow benefit promises to more beneficiaries that try to be delivered below their actual costs is less value per taxpayer dollar 148
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  numbers of Medicaid patients continued to shrink, and the quality of care prov...
THOMAS P MILLER The distortions in today s open ended Medicaid matching program for federal financial support that encourage higher overall costs will be magnified as the ACA temporarily increases the federal match for all states to 100 percent for the population of new program participants beginning in 2014 The pre ACA average matching rate for the federal share of total Medicaid spending nationally was 57 percent Some if not all participating states will respond to this incentive by reducing their efforts to control Medicaid s costs for newly eligible enrollees and by looking for ways to move more costs from their books and onto the federal budget while they can 8 The perverse incentives within Medicaid s structure extend far beyond their adverse impact on government budgets and health care reimbursement Medicaid was originally established in 1965 to provide health coverage to welfare recipients Most states established automatic categorical eligibility for Medicaid to their residents who also were enrolled in other federal programs that legally entitled them to welfare assistance primarily under the Aid to Families with Dependent Children program before that program s eligibility rules were revised extensively in the mid 1990s and mostly delinked from Medicaid eligibility Over the years Medicaid has moved away from that approach with more eligibility for coverage based strictly on income tests that may vary by state But even today Medicaid is not integrated into the insurance system for working age Americans It stands apart as a separate structure with no coordination or transition between Medicaid coverage and private health insurance This lack of coordination between the two spheres of insurance for lower income Americans causes serious problems for Medicaid beneficiaries When they earn more they often lose eligibility for Medicaid even if they face uncertain insurance prospects in the employer based market This continues to create employment disincentives Movement back and forth between Medicaid and private insurance plans can also disrupt ongoing relationships with physicians who are in private insurance networks but not part of a state s Medicaid plan 149
THOMAS P. MILLER  The distortions in today   s open-ended Medicaid matching program for federal financial support that enc...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM R EPEA L A N D R ESISTA NCE W ITHOU T R EFOR M IS NOT SU FFICIEN T Even though all of these chronic problems plaguing Medicaid will only be amplified under the ACA critics of the law need to do more than urge simple repeal of its Medicaid provisions or resistance by state governments to expansion of their Medicaid coverage Moving a modernized Medicaid program beyond its mistakes of the pre ACA past will require sustainable substantive reforms The lower bounds of necessary reform begin but do not end with setting realistic limits on taxpayers commitments to finance necessary health care services for low income Americans Finding a new sustainable balance between Medicaid s levels of eligibility covered benefits provider reimbursement and beneficiary choice requires more flexible tradeoffs better targeting decentralized decision making and more transparent accountability to both taxpayers and enrollees The upper bounds of Medicaid reform suggest that the program would perform better by promising less and concentrating more on its core mission of ensuring improved health care outcomes for those most in need This will entail less emphasis on the quantity of health services it provides and more on their quality Improving the effectiveness of Medicaid in the lives of low income Americans will also entail bolstering other areas of public policy that shape the magnitude and nature of the demand for its assistance as well as the likelihood of the program s success TESTING THE LOW ER A N D U PPER BOU N DS OF A MEDICA ID R EFOR M AGEN DA How do we adjust a Medicaid reform agenda to ensure not only that the necessary lower bounds are attained but that progress toward the upper bounds is not sacrificed A more realistic look at the necessary public policy changes falls into four broad categories Structuring sustainable fiscal limits and incentives Improving health care delivery 150
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  R EPEA L A N D R ESISTA NCE, W ITHOU T R EFOR M, IS NOT SU FFICIEN T  Even tho...
THOMAS P MILLER Developing a compelling political rationale Facilitating opportunities for innovation This chapter will focus primarily on the first category of policy changes with some additional thoughts on the other ones that will help strengthen and sustain them FISCA L R EFOR M First the challenge of publicly financing Medicaid should be placed in perspective Since its initial enactment in 1965 Medicaid s annual rates of spending growth have varied substantially in part because of different trends in the annual rate of enrollment growth versus the program s annual growth rate for spending per enrollee An important factor involves the changing composition of Medicaid enrollees the relative rates of enrollment growth for higher cost and lowercost beneficiaries such as the disabled versus younger mothers and their children It has been partly driven by policy changes involving eligibility for example newly covered populations in the 1990s and others arriving into the program s coverage under the ACA next year and categories of covered benefits for example moving prescription drug coverage in 2006 to Medicare for dual eligible seniors The long term historical trend has been for Medicaid expenditures per enrollee to grow at a slower rate than overall national health spending per capita For Medicaid the average annual rate was 7 7 percent from 1971 through 2010 note that all of the following years used in this section represent fiscal years rather than calendar years The average annual growth rate for national per capita health spending during that period was 8 2 percent However Medicaid enrollment growth over those four decades also averaged 3 4 percent per year boosting overall average annual growth in Medicaid spending to 11 4 percent 9 The difference in average annual growth rates has been much larger recently with Medicaid spending per enrollee growing by 2 5 percent 151
THOMAS P. MILLER        Developing a compelling political rationale        Facilitating opportunities for innovation  This...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM per year and overall national health spending per capita by 5 6 percent per year from 2001 through 2010 10 Medicaid spending growth trends varied even more at different times within this period 11 More recently a less characteristic dip in annual enrollment growth by 0 5 percent in 2007 slowed overall Medicaid growth that year to 5 4 percent even though per enrollee spending grew by 6 0 percent Since then the pace of enrollment growth has become a larger factor in driving Medicaid spending growth higher 12 Total projected Medicaid spending for medical assistance payments which does not include the program s administrative costs however was expected to grow much more slowly in 2012 increasing only 0 3 percent Actuaries at the Centers for Medicare and Medicaid Services CMS report that this would be the second slowest growth rate for such payments in the history of the program 13 Although the provisions of the ACA had no significant effect on the one time slowdown in 2012 in Medicaid spending that will not remain the case going forward Medicaid spending over the next 10 years is expected to increase at an average annual rate of 6 4 percent and at an average annual rate about 1 4 percentage points faster than average annual gross domestic product growth of 5 percent The largest share of this spending growth will be due to an annual rate of increase in enrollment of 3 4 percent reflecting the expansion of Medicaid eligibility under the ACA 14 To put these past trends and future estimates within a broader context it is reasonable to conclude that Medicaid spending will continue to grow as a share of state and federal budgets as well as the overall economy However its cost per enrollee will not drive this growth Rather its substantial increase in future enrollees will In fact federal budget analysts at the Congressional Budget Office CBO CMS and Congress expect the new Medicaid enrollees to be relatively healthier younger and less costly to cover State governments facing serious budgetary pressures of their own have demonstrated that they will continue to find every way possible to reduce their costs per enrollee If one assumes that Medicaid programs 152
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  per year and overall national health spending per capita by 5.6 percent per ye...
THOMAS P MILLER can continue to reimburse health care providers at rates substantially below those for private insurance and even Medicare it helps explain why the architects of the ACA rely so heavily on expansion of cheaper Medicaid coverage to reduce the number of uninsured Americans under the law 15 IS THE MEDICA ID FISCA L R EFOR M TOOLBOX H A LF F U LL OR H A LF EM PT Y The primary concern of most right of center Medicaid reform proposals at the congressional level in recent years has involved reducing the burden of current and future Medicaid spending on the budgets of the federal and state governments and the taxpayers who must finance them The standard policy reform tool kit usually involves a mix of increasingly tighter budgetary caps on Medicaid spending and delegating more discretion to state governments in how they resize their Medicaid benefits and practices to match slow rates of spending growth in the future The most common proposal builds on changing the current federal share of Medicaid financing from matching funds into block grants to individual states Although the level of initial federal contributions may remain similar to or even somewhat higher than current budget projections for the early years of such block grants the federal funding would grow at a lower rate in later years The block grants would be fixed in amount and grow over time according to more predictable formulas Most states would be given greater discretion in how they spend the federal funds for Medicaid purposes usually through waivers of at least some federal requirements under current law 16 The best working example thus far for carrying out the block grant approach usually involves a capped allotment of federal funds through the current FMAP formula to provide states with upfront funding over a predetermined period of time 17 Block grants would delink state and federal spending on any portions of Medicaid to which the new funding allocations applied 153
THOMAS P. MILLER  can continue to reimburse health care providers at rates substantially below those for private insurance...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM Under FMAP rules the open ended federal reimbursement of at least half and often more the average is 57 percent across all states of state Medicaid program expenditures has created strong incentives for states to spend less carefully Each state s Medicaid program ends up larger than it would be if its own taxpayers had to pay the entire cost This upward long term bias toward greater state Medicaid spending discourages more timely responsible reforms and pushes state programs beyond their sustainable limits Truly meaningful and cost effective Medicaid reform must begin but not end with substantial changes to the financing of Medicaid at the federal level FMAP rules in practice as opposed to in original theory have rewarded several richer states at the expense of poorer ones and encouraged additional state Medicaid spending on the margin to maximize matching federal dollars 18 Rearranging the federal share of Medicaid funding into block grants to the states with future annual updates indexed somewhat below current Medicaid spending growth rate projections has traditionally provided a formulaic shortcut to dilute those incentives Putting Medicaid on a more fixed budget such as through block grant federal funding would provide greater budgetary certainty at both levels of government By knowing the likely amount of federal assistance to expect in future years state Medicaid programs could be managed more carefully for the long haul The political appeal behind block grant style Medicaid reform is enhanced when it provides more operational discretion to states managing their Medicaid programs However more simplistic block grant reforms that address only federal fiscal problems at the aggregate level would not necessarily solve longstanding Medicaid program problems involving lack of informed choice for beneficiaries insufficiently vigorous competition in benefits design and poor incentives for improved health care delivery And when basic block grant proposals are fleshed out in more detail they need to resolve more complex issues such as how current 154
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  Under FMAP rules, the open-ended federal reimbursement of at least half, and o...
THOMAS P MILLER federal funding commitments will be reallocated differently among the states how generous the block grant support will remain in later years and what level of current federal guarantees and minimum standards for Medicaid should be maintained N ECESSA RY A DJ USTMEN TS One likely adjustment to broad block grants to the states for Medicaid funding on a fixed budget might involve setting different per capita funding amounts for different categories of Medicaid beneficiaries This would allow for the total level of federal Medicaid assistance to a state to vary for changes in enrollment levels such as increased numbers of low income persons qualifying for Medicaid during recessions or changes in the mix of Medicaid enrollee types receiving benefits in that state For example estimated per capita Medicaid spending in 2011 was 2 851 for children 4 362 for adults 15 931 for the elderly and 17 958 for the disabled 19 Hence different levels of per capita block grants might be more appropriate for different types of Medicaid beneficiaries likely to incur on average significantly higher or lower health care costs Should more medically expensive states with higher underlying health care costs receive larger per capita block grants Allowing for too many or too few types of adjustments in setting per capita block grants within and across states poses uncertain tradeoffs between need based payment accuracy and administrative and political feasibility Whether block grants to states are set at the aggregate or per capita level they would constitute fairly simple formulas shaped largely by budgetary objectives In the best case scenario initially fixed federal funding under either lump sum or per capita block grants to states will provide them with incentives to be more innovative and efficient in using available resources for their Medicaid programs If a state spends below the grant it can use the savings for other areas of need just like in the Temporary Assistance to Needy Families TANF program However tighter federal funding limits might instead prove inadequate to provide 155
THOMAS P. MILLER  federal funding commitments will be reallocated differently among the states, how generous the block gra...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM promised levels of Medicaid services and health care quality Moreover simply transferring large amounts of revenue from one level of government responsible for collecting it to another level of government left relatively free to spend it dilutes political accountability for balancing tax decisions with spending ones FLEX IBLE MEA NS TO ACH IEV E ACCOU N TA BLE OU TCOMES Greater emphasis on federalism in health policy must travel a twoway street Each state Medicaid program should be accountable for measured improvement in health care quality whether through better health outcomes or performance metrics rather than just for close compliance with federal rules and regulations The latter often has little if any real impact on the lives of beneficiaries and fails to promote efficiency and cost containment In a block grant or capped allotment approach to Medicaid reform the primary role of the federal government should be to ensure true accountability and responsibility on the part of states given greater freedom in spending federal dollars The federal government should offer every state the opportunity to enter into a simplified compact that sets outcome measures and benchmarks and then requires a participating state to report periodically perhaps quarterly on its performance toward them Federal oversight should be triggered when there is a significant deviation in the reported versus projected performance The number of measures should be limited to no more than 10 for each dimension of health care cost quality and access This will simplify or eliminate the state plan approval process allowing states and their constituents to concentrate more on what matters most better health outcomes better value and lower costs The federal government should allow states adopting this option to Determine their own eligibility categories and income threshold levels for Medicaid Establish rates and service delivery options 156
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  promised levels of Medicaid services and health care quality. Moreover, simply...
THOMAS P MILLER Design benefit packages that best meet the demographic public health and cultural needs of each state or region whether that involves adding deleting or modifying benefits and Use cost sharing as a way to promote individual responsibility for personal health and wellness Congress may also consider providing bonus payments for each state that achieves appropriate benchmarks However even the best versions of block grant style Medicaid reform essentially hand off many important Medicaid decisions concerning health benefit levels20 from one set of government officials at the federal level to other policy makers at the state level Individual beneficiaries remain largely on the sidelines instead of becoming more engaged and empowered DI R ECT TO CONSU M ER M EDICA L EM POW ER M EN T A different more consumer focused Medicaid reform would develop a defined contribution alternative for Medicaid financing and coverage at the individual level If a Medicaid reform proposal needed to hold taxpayer costs and program eligibility rules relatively more constant defined contribution payments to individual beneficiaries could facilitate those goals by allowing the nature level and quality of Medicaid s health benefits to become more variable and then more freely selected by Medicaid enrollees Defined contribution payments are made more directly and transparently to beneficiaries than the various mechanisms that divert the amount and nature of defined benefit promises through other third party intermediaries Defined contributions aim to empower and encourage consumers and patients to make better health care choices They are designed to stimulate more innovative and accountable competition by health care providers And they would provide stronger incentives to save and invest so that we can pay more for 157
THOMAS P. MILLER        Design benefit packages that best meet the demographic, public health, and cultural needs of each ...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM health care when it delivers more value but redirect our resources to other investments in well being when it delivers less Although defined contribution public dollars from taxpayers to support such coverage would be limited the spending of additional private dollars to enhance or expand coverage would not be restricted Supplemental benefits paid for exclusively with private dollars could vary widely beyond a baseline definition of core coverage and its actuarial equivalents that would be supported in whole or in part through taxpayers defined contributions The better version of defined contribution health benefits would not just place initial control of how to spend those taxpayer subsidies in the hands of beneficiaries it also would provide an enhanced infrastructure of health information and connections to intermediary agents to assist those beneficiaries in making their health care choices more actionable and effective This approach would reward insurers health care providers and state policy makers for raising the quality of health care the value of health benefits and the satisfaction of Medicaid patients instead of just for keeping the apparent costs of the program lower or hidden States pursuing more market based consumer choice reforms also should acknowledge that they may have to decide to cover fewer people leave more details of health spending decisions to those beneficiaries that are ready and eager to make them pay participating health care providers for the full costs of care and measure quality of delivered care more accurately MEETING THE FEASIBILIT Y TEST The limitations in using simple formulas to schedule budgetary reductions in the future rate of Medicaid spending is that this expedient device may not be politically sustainable if it does not realistically ensure other types of insurance coverage for low income Americans For example one theoretically appealing concept would replace both traditional Medicaid assistance and the tax preference for 158
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  health care when it delivers more value, but redirect our resources to other i...
THOMAS P MILLER employer sponsored insurance with defined contribution payments for both kinds of insurance This could open up new possibilities for explicit and beneficial coordination between the Medicaid program and the coverage normally offered to working age Americans A particularly ambitious approach might restructure taxpayers financial contributions to health insurance coverage so that all workingage Americans and their families receive a baseline amount of support It might be set as equal to their proportionate share of the value of eliminating the current exclusion of employer paid premiums from federal income and payroll taxes In most past formulations of this proposal a fixed refundable tax credit would be paid to all American households That could be explicitly amended to include those who otherwise would also be eligible for Medicaid most likely just those who are nonelderly and not disabled 21 Medicaid funds could then supplement this financing mechanism for those with especially low incomes who need additional support beyond that base amount from the reallocated funds of the tax exclusion to pay for more of their remaining premiums and cost sharing perhaps delivered through a specially dedicated health savings account These add on Medicaid payments could then be phased down gradually to avoid producing substantial disincentives for the beneficiaries to climb the wage and income ladder on their own Integration of the taxpayer provided financial assistance side of health coverage would then allow better coordination and more portable insurance for low income families who also work One possible enhanced feature might give states an incentive to develop specific insurance selection structures that allow Medicaid beneficiaries to enroll in the same kinds of plans as workers with higher wages To reap the benefits of moving toward a defined contribution system based on full consumer choice of competing plans offering different models for accessing services Medicaid participants would have a greater share of their premiums subsidized by the combined tax credit and a substantial portion of the Medicaid payments for which they previously were eligible But those beneficiaries still would face 159
THOMAS P. MILLER  employer-sponsored insurance with defined-contribution payments for both kinds of insurance. This could ...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM some additional costs if they chose to enroll in more expensive coverage options If current pre ACA Medicaid support payments were converted into such defined contribution payments for a state s nondisabled and nonelderly enrollees those beneficiaries could be folded into the same insurance selection model as many other state residents This would give those Medicaid beneficiaries coverage they could retain even as they move up the wage ladder thus avoiding disruptions in care for themselves and their spouses and children while putting pressure on the plans to offer value and quality to keep them as paying customers STR ETCHI NG TH E LI M ITS OF PR EM I U M ASSISTA NCE Of course states have been granted authority already if they choose to exercise it to use Medicaid funds to subsidize the purchase of private health insurance for eligible beneficiaries such as coverage sponsored by their employer through premium assistance programs At least 39 states operate some form of premium assistance through Medicaid or CHIP States have the option to use wraparound coverage that supplements an employer s health plan benefits and pays for some or all of its cost sharing and thereby delivers the same coverage as any other beneficiary in the states traditional Medicaid programs However enrollees in such options account for less than 1 percent of total Medicaid CHIP enrollment and an even smaller portion of those two programs spending 22 Among the impediments to greater use of premium assistance are federal and state price controls that shift costs to private payers 23 Such premium assistance also must maneuver through complex and costly administrative procedures Lack of affordable or any employer sponsored coverage for many low income workers on the one hand or employers concern that additional enrollment will increase their own health plan costs on the other hand further limit the potential of premium assistance 160
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  some additional costs if they chose to enroll in more expensive coverage optio...
THOMAS P MILLER Other proposals to privatize a substantial portion of current Medicaid coverage with equal or better private health insurance must overcome equally challenging cost benefit tests Simply comparing and then trying to match the costs of Medicaid versus private coverage for different populations and different mixes of benefits let alone different coverage arrangements remains a daunting policy reform challenge For example CBO projected in July 2012 that under the ACA the average new enrollee in Medicaid would cost taxpayers roughly 6 000 a year by 2022 whereas the average new enrollee in the ACA s heavily subsidized health exchanges would cost 9 000 a year 50 percent more 24 A different estimate in November 2012 by Urban Institute analysts noted that the cost of covering a new Medicaid enrollee varies by the individual s health status previous coverage and other characteristics as well as by changes in prices for medical services over time Allowing for those caveats they estimated that the resulting average cost per Medicaid enrollee would rise from 5 440 in 2016 to 7 399 in 2022 25 Comparison with the cost of coverage on the private insurance side depends on which segment of that market one uses as an alternative and whether one accounts for significant differences between private insurance and Medicaid in what is officially covered who enrolls and what is actually delivered Average premium costs in the individual market were 2 580 per year in 2011 and average premiums in the employer group market for individual coverage were 5 615 per year in 2012 26 However benefit packages are significantly more generous in the employer market than in the individual market and the former are generally subject to lower percentages of out of pocket cost sharing In examining proposals to provide equal or better coverage to current Medicaid enrollees through subsidized private insurance alternatives one must ask several preliminary questions before assessing the relative net costs to taxpayers and to enrollees Which type of Medicaid population is involved Mothers with children kids under 18 and single adults generally are in good health and 161
THOMAS P. MILLER  Other proposals to privatize a substantial portion of current Medicaid coverage with equal or better pri...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM relatively inexpensive to cover under Medicaid Annual health care costs and insurance risk premiums for disabled and elderly adults are much higher and less predictable in both the public and private insurance sectors How equivalent are the benefits offered in Medicaid versus alternative private coverage Medicaid officially offers more comprehensive benefits in many cases with virtually no cost sharing But its substantially lower reimbursement rates for health care providers also mean that its beneficiaries access to high quality health care is much more limited even if their official per enrollee costs are lower Hence when one assesses the relative merits of more Medicaid coverage versus greater reliance on subsidized private insurance coverage for low income Americans ultimate political judgments may hinge more on qualitative and normative factors than on questionable estimates of potential budget savings BEYON D BU DGETA RY BA L A NCE SHEETS I M PROV I NG H EA LTH CA R E DELI V ERY Most right of center Medicaid reform proposals pay too little attention to improving the quality and value of health care delivered to the program s enrollees In part this reflects a healthy deference to the role of private markets and health care practitioners in addressing such problems But it also indicates a tendency to bypass the thorny details of how to deliver better health care despite budgetary constraints Once the aggregate fiscal numbers for a formulaic reform approach can be projected to be lower and the Medicaid program can be painted with a broad brush as a dismal failure 27 the political temptation is to stop there But falling back on clich s and nostrums that salute the potential benefits of greater use of managed care more consumer engagement and wider discretion for state level managers of Medicaid programs without more concrete plans to implement them is far from enough to constitute meaningful reform 162
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  relatively inexpensive to cover under Medicaid. Annual health care costs and i...
THOMAS P MILLER Managed care for an increased share of Medicaid beneficiaries is not any sort of universal cure all Its effects on costs and quality depend on how well it is executed in practice as well as the setting in which it occurs The standard managed care tool kit for reducing Medicaid costs on the health care delivery side besides paying providers less is well known in theory but more difficult to implement consistently Move more health care treatment encounters to less sophisticated settings and lower cost providers Keep beneficiaries out of the higher cost hospitals emergency rooms and nursing homes as much as possible Catch potential health problems sooner through preventive care early diagnoses and better coordination across multiple health care providers Ensure that Medicaid funding follows the beneficiary across the multiple settings where they need and choose care rather than locking them into more siloed care delivery processes Medicaid program contracts with managed care providers in theory offer a mechanism to hold participating health plans or providers more accountable for the health outcomes and patient experience of Medicaid enrollees through various performance standards A recent 50 state survey of Medicaid managed care programs by the Kaiser Commission on Medicaid and the Uninsured indicates that states are increasingly mandating managed care for previously exempt or excluded Medicaid beneficiaries and that such programs already cover about two thirds of all Medicaid beneficiaries 28 Broader efforts to focus managed care on dual eligibles are expanding or getting under way These projected expansions are driven by both severe state budget pressures and interest in improving health care access and quality for Medicaid beneficiaries The ACA also encourages multiple experiments with expanded managed care interventions for various Medicaid subpopulations 163
THOMAS P. MILLER  Managed care for an increased share of Medicaid beneficiaries is not any sort of universal cure-all. Its...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM A cautionary note comes from a recent study by Duggan and Hayford that examined detailed data on state Medicaid expenditures from 1991 to 2003 29 They found that shifting Medicaid recipients from traditional fee for service benefits programs into Medicaid managed care programs did not reduce Medicaid spending in the typical state Effects of the shift varied significantly across states as a function of the relative generosity of the state s baseline Medicaid provider reimbursement rates In states where Medicaid provider reimbursement is very low relative to commercial reimbursement rates managed care contracting seemed to increase Medicaid spending and vice versa The likely explanation is that most managed care programs achieve their savings primarily through obtaining lower prices rather than reducing quantities of health care services Duggan and Hayford acknowledge that elderly and disabled Medicaid recipients may differ in many respects from most of the Medicaid recipients previously affected by managed care mandates However given that current and future Medicaid reimbursement rates appear to be moving downward because of severe budgetary pressures and few other cost reducing options available for state policy makers their overall analysis suggests that the potential for further future savings from Medicaid managed care is increasingly limited BU ILDING A BETTER POLITICA L NA R R ATI V E FOR MEDICA ID R EFOR M Assembling an effective coalition in favor of more market based alternatives to expansion of an unreformed Medicaid program will require more than a recitation of budget projections that suggest it costs too much and we can t afford it Those statements may contain accurate mathematical conclusions but they fail to offer better realistic alternatives that can address the health care needs of low income Americans more effectively The political case for Medicaid reform needs to reflect the core values of the political constituencies that will support it Hence it needs to combine firm commitments to provide financial assistance to the 164
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  A cautionary note comes from a recent study by Duggan and Hayford that examine...
THOMAS P MILLER most vulnerable Americans with greater reliance on more decentralized market based choice and competition to carry out those goals more effectively and efficiently The ultimate test is whether the health outcomes of the poor are improved by such interventions Spreading more health care services across a wider base of new beneficiaries further up the income ladder as the ACA envisions is more likely to dilute their value Better targeting of such assistance toward disabled very low income and medically impoverished populations is essential Able bodied adults without the resources to pay for basic medical bills may merit short term financial relief while in extreme duress but public policy interventions need to be more focused on helping them regain independence and self sufficiency Taxpayer subsidized health coverage should be aimed at establishing a politically acceptable floor below which no one should fall but individuals subject to short term economic dislocations or uncomfortable circumstances need to know that their access to better health care in the future is tied to how well they fare eventually in the overall economy Better jobs and higher incomes rather than larger taxpayer subsidized transfer payments must remain their primary ticket out of unmet medical needs and less satisfactory health care Even the most optimistic vision of improvements in Medicaid s health care delivery quality and efficiency must consider the effects of slow or stagnant economic growth rising levels of disabling health conditions and lack of improvement in the dependency ratio between working taxpayers and beneficiaries dependent on publicly financed health entitlement programs Hence health policy should support broader economic policy incentives to work save and invest more effectively so as to protect the most vulnerable Americans without increasing their numbers One of the strongest arguments for limiting the future growth of Medicaid spending should be how it will free up public and private resources to improve the lives of all Americans but particularly poorer ones in more effective ways There are also clear fiscal and administrative ceilings on the degree to which current Medicaid beneficiaries can be mainstreamed quickly 165
THOMAS P. MILLER  most vulnerable Americans with greater reliance on more decentralized, market-based choice and competiti...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM into higher quality private insurance coverage by offering definedcontribution subsidies that flow directly to them and their chosen insurer However attractive this ultimate long term goal may be achieving it will either cost more money or cover fewer people than both the ACA and the older Medicaid program pretend to do at cutrate prices Better private coverage has to pay health care providers more to deliver better care and the current level of Medicaid spending even for the less medically challenged nonelderly nondisabled portion of its covered population is far from sufficient to handle the cost of those higher premiums on a large scale FACILITATING IN NOVATI V E HEA LTH CA R E FOR LOW INCOME A MER ICA Thoughtful Medicaid reform still can remove or reduce unnecessary impediments to more innovative approaches for delivering better care to low income individuals and improving their health outcomes At a minimum the Medicaid waiver process for state level experimentation should be streamlined and made less prone to discretionary political micromanagement 30 Maintenance of effort requirements in the ACA that have restricted state level changes in eligibility and benefit rules should be limited to minimum commitments in broad budgetary terms if not eliminated entirely Permissible corridors for Medicaid beneficiary cost sharing must be widened even beyond those first allowed under the 2005 Deficit Reduction Act so that more effectively targeted incentives to make better health care choices and adopt healthier behaviors can be signaled to a broader mix of Medicaid enrollees 31 A thoughtful set of additional state based Medicaid reform recommendations by the Republican Governors Public Policy Committee includes providing states with enhanced options to reward individuals who participate in health promotion or disease prevention activities and to offer value added or additional services for individuals choosing a lower cost plan The committee s health care task force also called for a necessary 166
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  into higher-quality private insurance coverage by offering definedcontribution...
THOMAS P MILLER reexamination of obsolete federal Medicaid rules for mandatory versus optional benefits 32 CONCLUSION The ACA will overload and stress an already troubled Medicaid program Medicaid was nearing a fiscal and operational crisis even before this latest attempt to expand the health insurance program for low income Americans Moving a modernized Medicaid program beyond its mistakes of the past and ACA implemented future will require sustainable substantive reforms that must include more than fiscal spending cap formulas block grants to state branches of the Medicaid bureaucracy and overreliance on private managed care contractors to achieve unprecedented cost savings and productivity gains The lower bounds of necessary reform certainly include realistic limits on taxpayers commitments to finance necessary health care services for low income Americans But they also need more flexible tradeoffs and better targeting of scarce resources Those objectives are accomplished best through decentralized decision making market based delivery mechanisms and more transparent accountability The upper bounds of Medicaid reform suggest that the program would perform better by concentrating more on its core mission of ensuring improved health outcomes for those most in need This should involve a broader focus on other areas of public policy that shape the magnitude and nature of the demand for its assistance as well as the likelihood of the program s success Although premium assistance models for connecting low income Medicaid beneficiaries to higher value private insurance options face substantial fiscal and operational challenges further experiments with definedcontribution assistance delivered directly to nondisabled lowerincome Americans below age 65 should be encouraged 167
THOMAS P. MILLER  reexamination of obsolete federal Medicaid rules for mandatory versus optional benefits.32 CONCLUSION  T...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM NOTES 1 Patient Protection and Affordable Care Act Pub L No 111 148 124 Stat 119 2010 codified as amended sections of 42 U S C 2 The early estimates of increased enrollment by the Congressional Budget Office CBO varied to some degree within that higher range depending on when they were issued and the period of time over which they were projected See for example Congressional Budget Office Letter to the Honorable Nancy Pelosi providing an estimate of the direct spending and revenue effects of an amendment in the nature of a substitute to H R 4872 the Reconciliation Act of 2010 March 20 2010 estimating about 16 million more enrollees in Medicaid and CHIP by fiscal year 2019 above the pre ACA baseline http www cbo gov sites default files cbofiles ftpdocs 113xx doc11379 amendreconprop pdf and Congressional Budget Office Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act March 2012 estimating from 16 million to 17 million more individuals covered by Medicaid and CHIP during fiscal year 2016 through fiscal year 2022 than under pre ACA law http cbo gov sites default files cbofiles attachments 03 13 Coverage 20Estimates pdf 3 The Supreme Court ruled in National Federation of Independent Business v Sebelius that the federal government could not penalize states that chose not to implement the new health law s original mandate that all state Medicaid programs cover legal residents with incomes up to 138 percent of the federal poverty level FPL CBO subsequently lowered its ACA related Medicaid coverage estimates projecting a smaller increase of about 11 million in enrollees in Medicaid and CHIP by fiscal year 2022 Congressional Budget Office Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision July 2012 http www cbo gov sites default files cbofiles attachments 43472 07 24 2012 CoverageEstimates pdf 4 See for example Avik Roy How Medicaid Harms the Poor A Counter Rebuttal Part II Apothecary serial on the Internet March 10 2011 http www forbes com sites aroy 2011 03 10 how medicaid harms the poor a counter rebuttal part ii 5 Will Fox and John Pickering Hospital Physician Cost Shift Payment Level Comparison of Medicare Medicaid and Commercial Payers Milliman Client Report December 2008 http www milliman com expertise healthcare publications rr pdfs hospital physician cost shift RR12 01 08 pdf 6 See for example Kathleen M King and Kay L Daly US Government Accountability Office Medicare and Medicaid Fraud Waste and Abuse Effective Implementation of Recent Laws and Agency Actions Could Help Reduce Improper Payments GAO11 409T Statement before the Senate Committee on Homeland Security and Governmental Affairs Subcommittee on Federal Financial Management Government Information Federal Services and International Security March 9 2011 US Government Accountability Office Medicaid Integrity Program CMS Should Take Steps to Eliminate Duplication and Improve Efficiency GAO 13 50 November 2012 7 See for example Sandra L Decker In 2011 Nearly One Third of Physicians Said They Would Not Accept New Medicaid Patients but Rising Fees May Help Health Affairs 31 no 8 2012 1673 79 Stephen Zuckerman Aimee F Williams and Karen E Stockley Trends in Medicaid Physician Fees 2003 2008 Health Affairs April 28 2009 w510 519 http content healthaffairs org content 28 3 w510 full pdf Peter Cunningham Physician Reimbursement and Participation in Medicaid presentation to the Medicaid and CHIP Payment and Access Commission September 23 2010 http www hschange com CONTENT 1157 1157 pdf 168
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  NOTES 1.   Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 12...
THOMAS P MILLER 8 A somewhat countervailing dynamic will be produced by a so called woodwork effect that might encourage greater enrollment of individuals eligible for Medicaid under pre ACA rules and at lower matching rates for federal funding This would be due to the effects of the ACA s individual coverage mandate expanded health insurance enrollment efforts and streamlined Medicaid eligibility rules 9 Office of the Actuary US Department of Health Human Services 2012 Actuarial Report on the Financial Outlook for Medicaid March 2013 17 http www medicaid gov Medicaid CHIP Program Information By Topics Financing and Reimbursement Downloads medicaid actuarial report 2012 pdf 10 Ibid 48 11 For example Medicaid spending grew relatively more slowly at a 6 4 annual average rate from 1994 through 1999 largely because Medicaid enrollment growth decelerated dramatically below population growth rates after a series of program eligibility expansions in the early 1990s The main factors behind the enrollment growth slowdown from 1994 through 1999 were strong economic growth and welfare reform However Medicaid spending growth picked up speed from 2000 through 2005 increasing at an average of 8 8 percent per year Most of that was due to annual enrollment growth of 6 3 percent whereas Medicaid spending per enrollee grew at only 2 4 percent a year Ibid 18 12 In 2008 Medicaid enrollment grew 2 7 percent contributing to a 5 9 percent increase in Medicaid spending The effects of enrollment growth 6 7 percent were even greater in 2009 when overall Medicaid spending increased by 7 6 percent A somewhat slower rate of Medicaid spending growth in 2010 up 6 1 percent from 2008 still was driven largely by enrollment increasing by 5 5 percent Even when Medicaid spending picked up slightly in 2011 growing by 6 4 percent more of that growth was caused by estimated increases in enrollment up 3 8 percent than by increases in Medicaid spending per enrollee up 2 6 percent Ibid 19 20 13 Although overall health spending growth rates have been noticeably lower in recent years due to the 2007 09 recession and relatively sluggish economic growth since then the most significant one time factor in the sudden drop in the Medicaid growth rate in 2012 appears to have been the elimination of recent temporary increases in the federal matching rates of funding for state Medicaid programs for 2009 2010 and 2011 adopted under the 2009 American Recovery and Reinvestment Act State policy makers experienced an offsetting short term surge in the annual rate of increase for their state s Medicaid expenditures up 19 9 percent in 2011 and 18 1 percent in 2012 from a lower state matching rate base but they responded by adopting stronger efforts to prevent even faster spending growth Ibid 20 25 Vernon K Smith et al Medicaid Today Preparing for Tomorrow A Look at State Medicaid Program Spending Enrollment and Policy Trends Henry J Kaiser Family Foundation October 2012 14 Office of the Actuary 2012 Actuarial Report iv 50 15 See Thomas P Miller Only a Cease Fire in a Political Hundred Years War Health Affairs 29 6 1101 5 Thomas P Miller Health Reform s Late Term Delivery Struggling with Political Birth Defects American Enterprise Institute Online June 8 2010 http www aei org speech health healthcare reform health reforms late term delivery struggling with political birth defects 16 Waiver authority under current law provides federal government permission for states to test new or existing ways to deliver and pay for health care services In the Medicaid program there are four primary types of waivers and demonstration projects for 169
THOMAS P. MILLER  8.   A somewhat countervailing dynamic will be produced by a so-called    woodwork    effect that might ...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM which states can apply Section 1115 Research Demonstration Projects provide states with program flexibility to test particular approaches in financing and delivery of Medicaid benefits Section 1915 b Managed Care Waivers allow states to provide services through managed care delivery systems or to otherwise limit beneficiaries choice of providers Section 1915 c Home and Community Based Service Waivers permit states to provide long term care services in home and community settings rather than in institutional settings With Concurrent Section 1915 b and 1915 c Waivers states can simultaneously implement two types of waivers to provide a continuum of services to the elderly and people with disabilities as long as all federal requirements for both programs are met 17 Rhode Island received a Global Medicaid waiver in 2009 to establish a new state federal compact In exchange for much more flexibility to run its state Medicaid program Rhode Island agreed to provide the federal government with greater fiscal certainty Under the waiver Rhode Island promised to operate its Medicaid program under an aggregate budget cap of 12 075 billion combined federal and state spending over a five year period The first of its kind Rhode Island agreement capped the federal government s obligations for an entitlement at a fixed level If the state program spends more than this average trend rate and total spending exceeds the cap Rhode Island is responsible for 100 percent of those additional costs The Rhode Island waiver is not a block grant It preserves the FMAP formula for determining the relative federal share of the total level of the state Medicaid program s spending but it caps that aggregate spending through 2013 Within these federal funding limits the state was given greater freedom to design and redesign its program The early results have been promising In the first 18 months under the global waiver estimated savings were 100 million and the annual rate of growth in total Medicaid spending was reduced by more than half from 7 94 percent to 3 percent If the state s Medicaid spending continues on the same path for the next three years it will amount to several billion dollars less than the cap agreed to for the fiveyear demonstration See Tom Miller Taking Medicaid Off Steroids in The Great Experiment The States The Feds and Your Healthcare Boston Pioneer Institute 2012 84 and The Lewin Group An Independent Evaluation of Rhode Island s Global Waiver Falls Church VA The Lewin Group December 2011 1 3 18 The higher income states can afford to expand their programs in prosperous economic times to a greater extent than poorer states but they cut Medicaid expenditures less when their economies contract Even though wealthier states have lower matching rates they have expanded their programs to a greater extent than the states that typically have higher proportions of poor people Robert B Helms Medicaid The Forgotten Issue in Health Reform AEI Health Policy Outlook November 2009 http www aei org article health healthcare reform medicaid the forgotten issue in health reform 19 Office of the Actuary 2012 Actuarial Report iii 20 For example How comprehensive will benefits be With how much cost sharing What degree of medical management will be applied to them 21 Applying a defined contribution to the costliest and most medically complex Medicaid beneficiaries the elderly blind and disabled many of whom are dually eligible for Medicare coverage is more problematic and less practical in the near term Those categories of Medicaid coverage need more complex long term reform approaches that merit a more nuanced discussion beyond the limits of this chapter 22 Cynthia Shirk Premium Assistance An Update Background Paper 80 National Health Policy Forum October 12 2010 US Government Accountability Office 170
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  which states can apply. Section 1115 Research   Demonstration Projects provide...
THOMAS P MILLER Medicaid and CHIP Enrollment Benefits Expenditures and other Characteristics of State Premium Assistance Programs GAO 10 258R January 19 2010 23 Fox and Pickering Hospital and Physician Cost Shift Federal approval of state premium assistance plan waivers also requires states to demonstrate their cost effectiveness compared to traditional state Medicaid coverage and guarantee that they will offer comparable health benefits and protection against cost sharing 24 Congressional Budget Office Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision 15 16 The extra exchange costs per person are larger than the decrease in Medicaid costs per person primarily because in CBO s and the Joint Committee on Taxation s estimation private health insurance plans in the exchanges will pay providers at higher rates than Medicaid pays and will have higher administrative costs than Medicaid although there are other partially offsetting factors as well 25 John Holahan et al The Cost and Coverage Implications of the ACA Medicaid Expansion National and State by State Analysis Kaiser Commission on Medicaid and the Uninsured November 2012 26 See Henry J Kaiser Family Foundation Average Per Person Monthly Premiums in the Individual Market State Health Facts http kff org other state indicator individual premiums The Kaiser Family Foundation and Health Research and Educational Trust Employer Health Benefits 2012 Annual Survey 2012 27 For example note the quick dismissal by many conservative critics of expanded Medicaid coverage on the grounds that its short term benefits are quite limited in the wake of recent evidence that it failed to improve several measurable health outcomes compared to other study participants left uninsured Katherine Baicker et al The Oregon Experiment Effects of Medicaid on Clinical Outcomes New England Journal of Medicine 368 no 18 2013 1713 22 28 Katherine Gifford et al A Profile of Medicaid Managed Care Programs in 2010 Findings from a 50 State Survey Kaiser Commission on Medicaid and the Uninsured September 2011 http www kff org medicaid upload 8220 pdf 29 Mark Duggan and Tamara Hayford Has the Shift to Managed Care Reduced Medicaid Expenditures Evidence from State and Local Level Mandates Working Paper 17236 National Bureau of Economic Research http www nber org papers w17236 30 Fred Upton and Orrin Hatch Making Medicaid Work Protect the Vulnerable Offer Individualized Care and Reduce Costs United States Congress May 1 2013 10 11 http energycommerce house gov sites republicans energycommerce house gov files analysis 20130501Medicaid pdf 31 The premium and cost sharing provision under the Deficit Reduction Act of 2005 DRA gave states new options to align their Medicaid programs more closely to private insurance plans such as requiring recipients to pay monthly premiums deductibles coinsurance or copayments Prior to passage of the DRA Medicaid regulations allowed states to impose nominal cost sharing on certain Medicaid recipients Premium charges were generally prohibited Under the DRA states no longer needed to obtain a waiver from the secretary of the Department of Health and Human Services to impose cost sharing charges and premiums on certain nonexempt Medicaid recipients States are now allowed to charge copayments greater than the nominal amount to some Medicaid recipients and premiums to recipients with family incomes above 150 percent of the FPL In addition states can require payment of any allowable cost sharing at the point of service before providing care or services for 171
THOMAS P. MILLER     Medicaid and CHIP  Enrollment, Benefits, Expenditures, and other Characteristics of State Premium Ass...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM individuals with income above 100 percent of the FPL Centers for Medicare and Medicaid Services Deficit Reduction Act Important Facts for State Policymakers February 21 2008 https www cms gov Regulations and Guidance Legislation DeficitReductionAct Guidance Legislation DeficitReductionAct downloads Costsharing pdf 32 Republican Governors Public Policy Committee Health Care Task Force A New Medicaid A Flexible Innovative and Accountable Future 11 13 172
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  individuals with income above 100 percent of the FPL. Centers for Medicare and...
CHAPTER 9 MEDICAID AND HEALTH ROBERT F GR ABOYES T he expansion of Medicaid is a central component of the Patient Protection and Affordable Care Act ACA 1 The law sought to increase the nation s health insurance rolls by approximately 30 million out of roughly 50 million uninsured About half of the newly enrolled would themselves be covered not by private insurance but rather by Medicaid the country s insurance program for the poor 2 The disastrous rollout of healthcare gov has thrown the ACA s survival into doubt The entire ACA depends on a vast array of data flows and in early 2014 it is unclear when or whether the public website will become fully functional Arguably regardless of whether the website becomes fully functional even worse problems await the law 3 Before anyone imagined the problems with healthcare gov there were warnings that the ACA s biggest obstacles would lie in the perpetual need to meld disparate data on every American from an enormous array of public and private databases that have great difficulty interfacing 4 At the same time the Supreme Court s 2012 ruling on the ACA5 greatly weakened the incentives for states to agree to the law s Medicaid expansion precipitating heated debate in many states over how to proceed 173
CHAPTER 9   MEDICAID AND HEALTH ROBERT F. GR ABOYES  T  he expansion of Medicaid is a central component of the Patient Pro...
MEDICAID AND HEALTH Given these uncertainties it is an appropriate time to evaluate the efficacy of Medicaid as an institution capable of improving or maintaining its recipients health This chapter examines a growing body of evidence that Medicaid badly fails the enrollees it is designed to help The program provides poor coverage poor care and poor outcomes Therefore Medicaid falls into the same category as inner city public schools and government run housing projects hugely expensive social engineering initiatives that often fail their recipients An eloquent criticism of the program came in 2009 from Senator Ron Wyden D OR who referred to Medicaid as a caste system that limits the ability of the poor to access the providers and care they desire I want poor people in this country to have the kind of quality of care and dignity that members of Congress have he said 6 On that note it is worth reviewing some of the key points made by the other authors in this volume Joe Antos noted Medicaid s sheer size 465 billion per year and rapid growth rate 7 percent per year during 2000 12 versus 4 2 percent gross domestic product growth Antos also explored the conflicting incentives that allow states to draw funds from other states but only if they are willing to simultaneously raise their own residents taxes Jason Fichtner notes that with 57 million enrollees Medicaid is the nation s largest health insurer He too describes the tension between the states beggar thy neighbor and beggar thyself incentives Nina Owcharenko describes the massive fiscal impact that Medicaid has on the states Charles Blahous notes the financial risk to state budgets posed by the so called woodwork effect previously eligible enrollees drawn in by publicity surrounding the expansion June O Neill noted that Medicaid has effectively become a long term care program James Capretta describes the waiver option that some states have used to improve on the general Medicaid model e g Indiana Rhode Island Massachusetts Darcy Nikol Bryan describes physician patient interactions in the Medicaid environment Thomas Miller s chapter is perhaps the closest in spirit to the present chapter He examines some of the evidence that Medicaid provides 174
MEDICAID AND HEALTH  Given these uncertainties, it is an appropriate time to evaluate the efficacy of Medicaid as an insti...
ROBERT F GRABOYES poor coverage care and outcomes and warns that Medicaid critics who favor market approaches frequently slide toward complacency and alltoo easy dismissal of Medicaid altogether He suggests that market advocates need to focus on the quality of care and not just on the fiscal aspects of Medicaid And he stresses the need for Medicaid s critics to make the case that a more affordable system will more effectively address the health care needs of low income Americans He notes that some ideas popular among market advocates e g defined contribution plans vouchers Medicaid managed care are not panaceas especially given the particular qualities of Medicaid enrollees This chapter will build on these authors insights and especially on Miller s BACK TO BASICS Medicaid is a means to an end and the end is or ought to be health for lower income Americans Health of course is not the same as health care or health insurance or access to health insurance though the distinctions are often forgotten in public policy debates By and large the subject of this book thus far has been the means the institution of Medicaid and its impacts on America s finances That is an important and appropriate topic given that Medicaid is vast deeply imbedded in our economy a cornerstone of the social safety net and unlikely to go away anytime in the near future This final chapter focuses more on the end health than on the means the particulars of Medicaid and ultimately ponders whether the program ought to be replaced by some other form of low income assistance A Mercatus publication I authored in 2013 stated the following An ideal health care system will provide better health to more people at lower cost on a continuous basis 7 By this standard Medicaid is an abject failure For lower income Americans Medicaid yields poor coverage poor care and poor medical outcomes While promising coverage far beyond the program s original scope it fails to enroll millions of people who are among its intended population and who are eligible for enrollment The data suggest that Medicaid does 175
ROBERT F. GRABOYES  poor coverage, care, and outcomes and warns that Medicaid critics who favor market approaches frequent...
MEDICAID AND HEALTH surprisingly little to improve its recipients health and in some ways may even harm them indirectly It is a pennywise and pound foolish program that paradoxically sends costs soaring by underpaying providers And the coverage care and cost elements show little or no improvement over time 8 Medicaid is problematic both for its recipients and for the taxpayers who underwrite the program This chapter will explore some of the specific examples of how Medicaid fails with regard to coverage care and outcomes for its recipients It will briefly discuss how the ACA amplifies Medicaid s already considerable negatives but paradoxically affords an opportunity to steer Medicaid in directions that better serve the health of those in lower income strata as well as the rest of the health care system MEDICA ID PROV IDES POOR COV ER AGE With Medicaid health care coverage is incomplete and in some cases tenuous Because eligibility is based on income and number of people in the household some people drift in and out of coverage as their incomes and family sizes undulate And expansion of eligibility can lead to mass cancellations of coverage when the financial costs prove infeasible Medicaid currently has approximately 57 million enrollees 9 But about 11 million individuals are eligible for Medicaid but are not enrolled 10 The eligible but not enrolled comprise about 16 percent of the Medicaid eligible population and 25 percent of America s uninsured 11 Coincidentally the uninsured portion of those eligible for Medicaid is similar to the uninsured portion of the American public in general about 16 percent 12 In a certain sense the eligible butnot enrolled are de facto covered in that they can enroll retroactively thereby covering expenses incurred while the potential enrollees are technically uninsured Of course the eligible but not enrolled may behave differently with respect to care It is more difficult to say whether that altered behavior harms or helps the unenrolled 176
MEDICAID AND HEALTH  surprisingly little to improve its recipients    health and in some ways may even harm them indirectl...
ROBERT F GRABOYES The ACA aims to expand Medicaid enrollment by roughly 15 million individuals 13 But eligibility is based on the federal poverty level FPL and therefore depends both on income and on the number of people in a household Changes in either variable can shift individuals or families into or out of eligibility Given the volatility of income among lower income Americans this can lead to churn drifting in and out of coverage as family circumstances change over time In 2011 Sommers and Rosenbaum both supporters of the ACA estimated the amount of churn that would be experienced in a fully realized ACA expansion of Medicaid up to 138 percent of FPL They estimated that over a given year 50 percent of adults below 200 percent of FPL 28 million individuals would experience a shift from the exchanges into Medicaid or vice versa 14 They further predicted that some would see two three or even four or more shifts in a given year and suggested that such churn would likely lead to discontinuities in care 15 Sommers and Rosenbaum expressed concern that individuals experiencing such churn might tire of the shifts and stop maintaining coverage or seeking care 16 Rapid expansion of Medicaid as envisioned under the ACA also has the potential to touch off a cycle of expansion financial overload and mass cancellations of coverage The best example of such a process is the TennCare disaster that began in 1994 in Tennessee The state sought to convert Medicaid to managed care assuming this would lead to enough savings from efficiency gains to cover children and the uninsured In less than a decade however enrollment swelled far beyond what had been predicted and the savings proved elusive The expansion threatened the state government with bankruptcy and by 2006 the program was forced to cancel coverage for approximately 200 000 Tennesseans 17 A high profile study of Oregon s Medicaid expansion provides powerful new evidence that expansion increases rather than decreases the use of emergency services putting it another way one of the principal arguments in favor of expansion now appears illusory 18 177
ROBERT F. GRABOYES  The ACA aims to expand Medicaid enrollment by roughly 15 million individuals.13 But eligibility is bas...
MEDICAID AND HEALTH In sum Medicaid has a longstanding problem enrolling those who are eligible The eligibility requirements can lead to instability in a household s coverage and there is some susceptibility to large scale cancellations of coverage MEDICA ID PROV IDES POOR CA R E Once one is enrolled in Medicaid access to quality care becomes a serious challenge Because of low reimbursement rates and other factors many providers do not accept Medicaid patients others may retain existing Medicaid patients but decline new ones Excess demand by Medicaid enrollees requires rationing which occurs in several ways including discouragement by wait times and by political allocation of care The end result is frequent and medically suboptimal use of emergency rooms outside of the desired Medicaid channels Medicaid represents a classic shortage market Providers are compensated less by Medicaid than they would be in a free market equilibrium In fact Medicaid generally pays among the lowest reimbursement rates of any health insurance program 19 Providers are also discouraged from accepting Medicaid patients by long delays in receiving their reimbursement funds and by the fact that Medicaid patients require more provider time and resources on average than many other classes of patients 20 As a result providers often experience financial losses when treating a Medicaid patient At the same time Medicaid patients pay even less or receive care at no out of pocket expense As in any market if consumer and producer prices are set below equilibrium levels there will be excess demand and hence the need to ration allocation by nonmonetary methods This problem will likely only become exacerbated with the expansion of Medicaid under the ACA During 2011 12 roughly one third of physicians declined to accept new Medicaid patients 21 The problem is not improving 22 During 2003 08 Medicaid s reimbursement rates rose by less than the general rate of inflation thus implying a real reduction in the already low compensation level equal to 72 percent of that 178
MEDICAID AND HEALTH  In sum, Medicaid has a longstanding problem enrolling those who are eligible. The eligibility require...
ROBERT F GRABOYES of Medicare 23 The ACA included temporary increases in Medicaid reimbursement rates but the rollout of even those temporary increases has been problematic The increase planned for early 2013 has experienced delays 24 The ACA s reimbursement increase set to last two years would increase reimbursement rates up to Medicare levels but states have been slow to implement these rate increases and the change remains in question 25 The delays have resulted from slow rollout of federal regulations and slow responses by state authorities 26 In California where Medicaid enrollment is expected to rise from seven million to nine million reimbursement rates are low and are being cut still further 27 In 2012 the Texas Medical Association reported that only 31 percent of Texas physicians will accept new Medicaid patients citing red tape and administrative burdens as important causes 28 Medicaid recipients often face substantial wait times for care and the nonmonetary cost of waiting discourages some from seeking care 29 One result of these resource shortages is that Medicaid patients often seek routine and other care in emergency rooms rather than in far less expensive settings such as doctors offices Emergency room visits increased in Massachusetts after the state s 2006 health care reform Romneycare 30 became law 31 Many expect the situation to worsen nationally as the ACA expands the Medicaid rolls with no commensurate increase in provider resources 32 33 But rationing also occurs by political means States limit the types of procedures and providers to be compensated The Medicaid program in Oregon has perhaps the most sophisticated of these state allocation systems and that state s experience with rationing provides some of the more vivid examples of the moral challenges of rationing of care via politics Up through 1985 reimbursement for transplants was determined on a case by case basis Beginning in 1985 however Congress required a more systematic process for approving and disapproving reimbursement In a celebrated case in 1987 seven year old Coby Howard was diagnosed with a form of leukemia The only available treatment was a 100 000 bone marrow transplant which was not 179
ROBERT F. GRABOYES  of Medicare .23 The ACA included temporary increases in Medicaid reimbursement rates, but the rollout ...
MEDICAID AND HEALTH covered under the state s post 1985 plan The child s plight became the subject of intense nationwide publicity and lobbying efforts to alter the plan s restrictions While the child s death ultimately rendered the controversy moot in the heat of the controversy there were legislative proposals to reverse the regulation Ted Koppel host of ABC s Nightline program asked the following on air Is the cost of modern medical technology forcing public officials to play God 34 After the Coby Howard controversy Oregon moved toward an overt rationing plan modeled somewhat on the procedures used by Britain s National Health Service The state assembled panels of experts doctors consumer advocates health care administrators and medical ethics experts to determine how the state s Medicaid program would limit its payouts 35 The result was that 1 600 medical procedures were ranked by a measure of how much health would be provided by one dollar of expenditure to put it in the vernacular procedures were ranked by how much bang for the buck each provided 36 Across this list the state figuratively drew a line the allegedly high value procedures above the line would be covered whereas those below would not The line was drawn in such a way as to balance the cost of the above the line procedures with the state s global Medicaid budget 37 The rationing system again made national headlines in 2008 Oregon Medicaid does not reimburse treatments such as chemotherapy if medical authorities determine that the procedure will have less than a 5 percent probability of success In 2008 Oregon Medicaid declined to cover cancer treatments for 64 yearold Barbara Wagner but instead sent her a letter offering coverage of assisted suicide services 38 Aside from other moral questions programs like Oregon s raise a serious question Will ad hoc rationing as during the Coby Howard episode or algorithmic rationing as in the later period bias care and resources toward diseases that especially afflict the well connected and the telegenic In sum as a market perpetually in a state of excess demand Medicaid is forced to ration care Whether intentionally or not the 180
MEDICAID AND HEALTH  covered under the state   s post-1985 plan. The child   s plight became the subject of intense nation...
ROBERT F GRABOYES excess demand is reduced as wait times and other inconveniences increase However as the Oregon example shows rationing can also be overt and political MEDICAID PROVIDES POOR OUTCOMES The beginning of this chapter stressed that Medicaid s goal ought to be health rather than health insurance or health care It is in this realm that the evidence against Medicaid is most powerful Glenn Reynolds 39 Avik Roy 40 and Scott Gottlieb41 provide excellent overviews of the program s dismal record in improving people s health A Heritage Foundation study examined data related to the TennCare disaster described above The study found that even after TennCare s explosive increase in costs Tennessee s mortality rate did not improve vis vis neighboring states 42 A large and growing academic literature documents situations in which Medicaid recipients fare no better than or fare even worse than the uninsured The following are some of the more prominent of these studies A 2008 Columbia Cornell study showed that uninsured and Medicaid patients had a higher risk of certain serious cardiovascular conditions than people with other types of insurance among those treated the differences were mostly absent suggesting that access to care was the key difference 43 A 1999 University of Florida study indicated that along with the uninsured Medicaid recipients cancers are diagnosed later than those of individuals with other forms of insurance 44 A 2011 study in Cancer showed Medicaid patients survival rates to be lower than those insured by other plans 45 A 2010 University of Pittsburgh study found that Patients with Medicaid uninsured and Medicare disability were at increased risk of death after a diagnosis of head and neck cancer when compared with patients with private insurance after adjustment for age gender race smoking alcohol use site socioeconomic status treatment and cancer stage 46 In 2010 the University of Virginia conducted a large scale study that suggested that an individual without insurance has better health 181
ROBERT F. GRABOYES  excess demand is reduced as wait times and other inconveniences increase. However, as the Oregon examp...
MEDICAID AND HEALTH outcomes than an individual on Medicaid 47 Even after adjusting for risk factors Medicaid patients had higher in hospital mortality longer hospital stays and higher costs compared with the uninsured those on Medicare and those on private insurance plans 48 A University of Pennsylvania study examined data on patients receiving surgery for colorectal cancer Medicaid patients had higher mortality and surgical complications than uninsured patients 49 A 2011 Johns Hopkins study found that Medicare and Medicaid patients have worse survival after lung transplantation compared with private insurance self paying patients 50 Perhaps the most damning of all the recent studies is the Oregon Experiment 51 This was a rare example of a large scale fully randomized experiment in health care In 2008 Oregon expanded its Medicaid program Approximately 90 000 people applied for 30 000 newly available slots and the state used a lottery to choose who got in and who did not Afterward the state tracked the health of 6 387 adults who were chosen and 5 842 who were not From a standpoint of physical health the results were devastating This randomized controlled study showed that Medicaid coverage generated no significant improvements in measured physical health outcomes in the first 2 years but it did increase use of health care services raise rates of diabetes detection and management lower rates of depression and reduce financial strain Supporters of Medicaid point to positives that follow the word but in the preceding sentence None of this evidence suggests that Medicaid harms its enrollees overall health in fact there is a strong case to suggest that other things being equal it is better to be on Medicaid than to be uninsured But the lack of improvement in physical health metrics strongly bolsters the case that whatever its merits Medicaid is deeply substandard in providing its recipients with health 182
MEDICAID AND HEALTH  outcomes than an individual on Medicaid.47 Even after adjusting for risk factors, Medicaid patients h...
ROBERT F GRABOYES W HER E TO GO The growing body of ambiguous evidence ought to raise questions about how America provides the poor with health care One can strongly support the idea of a social safety net without assuming that the present day incarnation of Medicaid is the only option This final section offers some thoughts Several dozen states have rushed pell mell into the ACA s Medicaid expansion and many or most others at least feel some pressure to do likewise The ACA leaves states in a difficult situation The ACA offers the states two choices Fully expand coverage to households with incomes up to 138 percent of FPL or leave things as they are Special pressure comes from one provision of the ACA Subsidized insurance exchange policies are available only for those households with incomes above 100 percent of FPL But in some states Medicaid eligibility ends well below that 100 percent figure In Virginia for example a couple with children is eligible for Medicaid as long as their income is at or below 31 percent of FPL The ACA essentially offers Virginia two choices Expand Medicaid all the way to 138 percent Or leave those parents whose income lies between 31 percent and 100 percent of FPL without Medicaid and without private insurance subsidies In other words in order to cover the 31 100 percent group the state effectively ends up denying the 100 138 percent group access to federal subsidies with which to purchase private insurance on the exchanges practically speaking that means denying them private insurance and moving them into Medicaid 52 Expansion advocates offer a moral argument for expansion failure to do so would leave those in the 31 100 percent range without access to either Medicaid or to private insurance 53 But there is an equally strong moral argument in the opposite direction As we have seen it is difficult to argue that distributing Medicaid cards among the 31 100 percent group will actually improve their health On the other hand expansion would mean that the 100 138 percent group would be shifted out of private insurance and shifted into Medicaid 183
ROBERT F. GRABOYES  W HER E TO GO  The growing body of ambiguous evidence ought to raise questions about how America provi...
MEDICAID AND HEALTH And the evidence is strong that doing so would be detrimental to their coverage care and health An added complication is the so called woodwork effect Under the ACA the federal government is supposed to finance 100 percent of the expansion for three years The federal share is then to taper off to 90 percent by 2020 However this funding formula covers only those newly eligible for Medicaid No doubt the expansion will bring in some of the previously eligible but unenrolled and they will not attract the federal funds allocated for the expansion the states will have to pick up the tab for that portion of the expansion 54 In The American Health Care System Principles for Successful Reform I described an appropriate strategic goal for health care as follows An ideal health care system will provide better health to more people at lower cost on a continuous basis This should be the ultimate goal of health care reform Yet decades of legislative attempts have failed to achieve this aim Why First proposed and enacted reforms have tended to focus on the provision of services rather than on the outcomes of those services Second reforms have tended to reinforce the weaknesses of the current system Existing laws regulations institutions and politics obstruct and discourage cost cutting innovation They unnecessarily constrain the supply of care the means to improve it and the capacity to lower costs These problems predate the Affordable Care Act ACA but the ACA compounds them Unfortunately proponents of market based solutions have mostly offered piecemeal fixes that have failed to convince broader constituencies 184
MEDICAID AND HEALTH  And the evidence is strong that doing so would be detrimental to their coverage, care, and health. An...
ROBERT F GRABOYES Third Washington has aimed far too low We should not seek to bend the cost curve but rather to break it to bits Enabling more people to receive better care at lower cost on a continuous basis requires replicating the plunging costs and soaring quality in computing transportation agriculture manufacturing distribution and communication In the mid 1990s simple cell phones were toys of the rich 15 years later smartphones dotted the world s poorest villages When American health care boasts the cost cutting innovation we associate with a Steve Jobs or Henry Ford we ll be on the right track 55 A common suggestion among market advocates is to move Medicaid to block grants A more radical suggestion is to restructure the program to meld today s Medicaid recipients into the private insurance market This is not uniquely an idea of the political right The Wyden Bennett bill in 2007 would have phased out Medicaid and shifted the enrollees into private insurance 56 Sommers and Rosenbaum57 suggested relieving the churn problem by creating dual plans for both Medicaid and the insurance exchanges Arkansas agreed to the ACA s Medicaid expansion by this method and it has been described favorably by Rosenbaum and Sommers 58 The New York Times noted proposals to expand Medicaid via private insurance 59 Thomas Miller s chapter in this volume suggests that these ideas are not panaceas But panaceas are not likely in the offing Ultimately the closest we can come to a panacea is likely to come from disruptive innovation In a previous article I noted that for the past 50 years we may well have been closing off our pathways to medical innovation 60 In another article I said the following American health care has no Steve Jobs or Bill Gates No Jeff Bezos Elon Musk Burt Rutan or Henry Ford No innovator whose genius and sweat deliver the twin lightning bolts of cost reduction and quality improvement 185
ROBERT F. GRABOYES  Third, Washington has aimed far too low. We should not seek to    bend the cost curve,    but rather t...
MEDICAID AND HEALTH across the broad landscape of health care Why not Either we answer that question soon and uncork the genie or we consign our health care to a prolonged unaffordable stagnation 61 Cost cutting innovation is probably the best path available for bringing better health to America s poor and America s not poor as well The Medicaid program as currently constituted likely discourages any such innovation And Medicaid is not unique in that respect Medicaid was created in 1965 to provide medical coverage for the poor As is now clear coverage does not necessarily translate into care and Medicaid s care does not necessarily translate into better health For the federal and state governments the program is pricey For enrollees who navigate Medicaid s labyrinth on the way to care it is perplexing And in terms of improving health it is poor From a moral standpoint lower income Americans deserve a better system than the current one which is pricey perplexing and poor To improve their lot we will have to harness private market incentives either within Medicaid or within a more appropriate replacement structure For the moment the ACA is pushing in the opposite direction expanding a broken program exacerbating the existing problems and delaying the onset of more effective more humane reforms NOTES 1 Patient Protection and Affordable Care Act Pub L No 111 148 124 Stat 119 2010 codified as amended sections of 42 U S C 2 It is somewhat incorrect to use the term newly enrolled since some of those added to the Medicaid rolls would be people who previously had private insurance 3 Robert Graboyes If They Ever Fix the Obamacare Website the Worst May Be Yet to Come Forbes October 31 2013 http www forbes com sites realspin 2013 10 31 if they ever fix the obamacare website the worst may be yet to come 4 C Eugene Steuerle Can the New Health Subsidies Be Administered The Government We Deserve November 23 2009 http www urban org publications 901303 html Paul Howard and Stephen T Parente Built to Fail Health Insurance Exchanges Under the Affordable Care Act Guest Opinion June 15 2011 186
MEDICAID AND HEALTH  across the broad landscape of health care. Why not  Either we answer that question soon and uncork th...
ROBERT F GRABOYES http www kaiserhealthnews org Columns 2011 June 061511howardparente aspx 5 National Federation of Independent Business v Sebelius 132 S Ct 2566 6 Mary Agnes Casey Hot Button Health Issue Is Medicaid or Private Insurance Better for the Poor Uninsured Kaiser Health News July 1 2009 http www kaiserhealthnews org Stories 2009 July 01 Medicaid aspx p 1 7 Robert Graboyes The American Health Care System Principles for Successful Reform Arlington VA Mercatus Center at George Mason University October 14 2013 http mercatus org publication american health care system principles successful reform 8 See for example Fichtner chapter in this book 9 Fichtner chapter in this book 10 Holahan Cook and Dubay Kaiser Commission on Medicaid and the Uninsured Characteristics of the Uninsured Who Is Eligible for Public Coverage and Who Needs Help Affording Coverage February 2007 http kaiserfamilyfoundation files wordpress com 2013 01 7613 pdf 11 Ibid 12 Ibid 57 million have enrolled in Medicaid and roughly 11 million have not 11 11 57 16 2 Roughly 50 million people in touch are uninsured out of a US population of 310 million 50 310 16 1 13 Status of the ACA Medicaid Expansion after Supreme Court Ruling Washington DC Center on Budget and Policy Priorities October 22 2013 http www cbpp org files status of the ACA medicaid expansion after supreme court ruling pdf 14 Benjamin Sommers and Sara Rosenbaum Issues in Health Reform How Changes in Eligibility May Move Millions Back and Forth Between Medicaid and Insurance Exchanges Health Affairs 30 2011 http op bna com hl nsf id nwel 8dqu2l File Sommerstudy pdf 15 Ibid 16 Ibid 17 Blackburn and Roe Real Clear Politics Lessons For Health Care Reform July 22 2009 http www realclearpolitics com articles 2009 07 22 tenncare_lessons_for _modern_health_care_reform_97570 html Blas The Heritage Foundation Obama s Proposed Medicaid Expansion Lessons from TennCare March 3 2010 http www heritage org research reports 2010 03 obamas proposed medicaid expansion lessons from tenncare 18 Finkelstein Baicker et al Medicaid Increases Emergency Department Use Evidence from Oregon s Health Insurance Experiment Science 17 no 343 6168 January 2014 263 68 Published online January 2 2014 doi 10 1126 science 1246183 19 Sharon Long Physicians May Need More Than Higher Reimbursements to Expand Medicaid Participation Findings from Washington State Health Affairs no 9 2013 1560 67 20 Ibid 21 Sandra Decker Two Thirds of Primary Care Physicians Accepted New Medicaid Patients in 2011 12 A Baseline to Measure Future Acceptance Rates Health Affairs 32 2013 71183 87 187
ROBERT F. GRABOYES  http   www.kaiserhealthnews.org Columns 2011 June 061511howardparente.aspx. 5.   National Federation o...
MEDICAID AND HEALTH 22 http www mcclatchydc com 2013 05 13 191105 most doctors still reject medicaid html 23 Stephen Zuckerman Aimee F Williams and Karen E Stockley Trends In Medicaid Physician Fees 2003 2008 Health Affairs 28 no 3 May June 2009 510 19 24 Bruce Japsen Obamacare s 73 Medicaid Pay Raise for Doctors Is Delayed Forbes March 15 2013 http www forbes com sites brucejapsen 2013 03 15 obamacares 73 medicaid pay raise for doctors is delayed 25 Abby Goodnough Medicaid Growth Could Advocate Doctor Shortage New York Times November 28 2013 http www nytimes com 2013 11 29 us lack of doctors may worsen as millions join medicaid rolls html _r 0 pagewanted print 26 Rebecca Adams Washington Health Policy Week in Review Medicaid Pay Increase Still Missing in Action in Most Places The Commonwealth Fund June 3 2013 http www commonwealthfund org Newsletters Washington Health Policy in Review 2013 Jun Jun 3 2013 Medicaid Pay Increase Still Missing in Action in Most Places aspx 27 Ibid 28 http www texmed org template aspx id 24764 29 Denise Grady Children on Medicaid Shown to Wait Longer for Care New York Times June 15 2011 http www nytimes com 2011 06 16 health policy 16care html 30 Chapter 58 of the Acts of 2006 an Act Providing Access to Affordable Quality Accountable Health Care Mass Const ch 58 April 12 2006 31 Avik Roy Emergency Room Visits Increase in Massachusetts National Review Online July 7 2010 http www nationalreview com critical condition 230795 emergency room visits increase massachusetts avik roy 32 http www nytimes com 2013 11 29 us lack of doctors may worsen as millions join medicaid rolls html _r 0 33 Avik Roy Emergency Rooms Will Get More Crowded National Review July 13 2010 http www nationalreview com agenda 230979 emergency rooms will get more crowded avik roy 34 The examples in this paragraph come from D M Fox and H M Leichter Rationing Care in Oregon The New Accountability Health Affairs 10 no 2 1991 7 27 35 Timothy Egan Oregon Lists Illnesses by Priority to See Who Gets Medicaid Care New York Times May 3 1990 http www nytimes com 1990 05 03 us oregon lists illnesses by priority to see who gets medicaid care html 36 Ibid 37 Daniel Calkthan catalogues the ethical challenges posed by such rationing http content healthaffairs org cgi reprint 10 2 78 pdf 38 Letter noting assisted suicide raises questions http abcnews go com Health story id 5517492 page 1 39 Glenn Harlan Reynolds Medicaid s Awful Results Column USA Today November 11 2013 http www usatoday com story opinion 2013 11 11 obamacare health care obama medicaid avik roy column 3489067 40 http www nationalreview com articles 313120 medicaid america s worst health care program avik roy http www encounterbooks com books how medicaid fails the poor 188
MEDICAID AND HEALTH  22.  http   www.mcclatchydc.com 2013 05 13 191105 most-doctors-still-reject -medicaid.html. 23.  Step...
ROBERT F GRABOYES 41 Scott Gottlieb Medicaid Is Worse Than No Coverage at All Wall Street Journal March 10 2011 http online wsj com news articles SB1000142405274870475890457 6188280858303612 42 Obama s Proposed Medicaid Expansion Lessons from TennCare Heritage Foundation http www heritage org research reports 2010 03 obamas proposed medicaid expansion lessons from tenncare 43 J K Giacovelli et al Insurance Status Predicts Access to Care and Outcomes of Vascular Disease Journal of Vascular Surgery 48 no 4 October 2008 905 11 44 R G Roetzheim et al Effects of Health Insurance and Race on Early Detection of Cancer Journal of the National Cancer Institute 91 no 16 August 1999 1409 15 45 Siran M Koroukian Paul M Bakaki and Derek Raghavan Survival Disparities by Medicaid Status Cancer 118 no 17 December 27 2011 http onlinelibrary wiley com doi 10 1002 cncr 27380 full 46 J Kwok et al The Impact of Health Insurance Status on the Survival of Patients with Head and Neck Cancer Cancer 116 no 2 January 2010 476 85 47 Damien J LaPar et al Primary Payer Status Affects Mortality for Major Surgical Operations Ann Surg 252 no 3 September 2010 544 51 http www national review com critical condition 231147 uva study surgical patients medicaid are 13 more likely die those without 48 Ibid 49 Rachel Rapoport Kelz et al Morbidity and Mortality Of Colorectal Carcinoma Surgery Differs by Insurance Status Cancer 101 no 10 November 2004 2187 94 50 J G Allen et al Insurance Status Is an Independent Predictor of Long Term Survival after Lung Transplantation in the United States Journal of Heart and Lung Transplantation 30 no 1 January 2011 45 53 51 Katherine Baicker et al The Oregon Experiment Effects of Medicaid on Clinical Outcomes New England Journal of Medicine 368 May 2 2013 1713 22 http www nejm org doi full 10 1056 NEJMsa1212321 52 Robert Graboyes Medicaid Expansion States under Duress Richmond TimesDispatch November 17 2013 http mercatus org expert_commentary medicaid expansion states under duress 53 See Medicaid Expansion A Morality Issue https www medicare com medicaid medicaid expansion a morality issue html 54 http capsules kaiserhealthnews org index php 2013 11 about 91000 enroll in medicaid as result of aca woodwork effect http watchdog org 65676 mt bullock seeks medicaid expansion but woodwork effect could hurt state budget 55 http mercatus org publication american healthaw care system principles successful reform 56 Healthy Americans Act http en wikipedia org wiki Healthy_Americans_Act 57 Op cit 58 Sara Rosenbaum and Benjamin D Sommers Using Medicaid to Buy Private Health Insurance The Great New Experiment New England Journal of Medicine 369 July 4 2013 7 9 http www nejm org doi full 10 1056 NEJMp1304170 189
ROBERT F. GRABOYES  41.  Scott Gottlieb,    Medicaid Is Worse Than No Coverage at All,    Wall Street Journal, March 10, 2...
MEDICAID AND HEALTH 59 R Pear States Urged to Expand Medicaid with Private Insurance New York Times March 22 2013 A14 60 Robert Graboyes American Medicine Closing of the Frontier USA Today November 7 2013 http mercatus org expert_commentary american medicine closing frontier 61 Robert Graboyes Paging Dr Jobs McClatchy Tribune October 2 2013 http mercatus org expert_commentary paging dr jobs 190
MEDICAID AND HEALTH  59.  R. Pear,    States Urged to Expand Medicaid with Private Insurance,    New York Times, March 22,...
APPENDIX A MEDICAID TIMELINE 1798 The Marine Hospital Act 1798 became the federal government s first foray into the public provision of health care Originally designed to benefit seamen its scope grew and it became the Public Health Service 1935 Franklin D Roosevelt signs Social Security Act 1964 Lyndon Johnson outlines plans for his War on Poverty legislation during his first State of the Union address 1965 A Democratic Congress creates Medicare parts A and B and Medicaid programs under Johnson s leadership 1971 States are permitted to expand Medicaid coverage to elderly or disabled patients in intermediate care facilities and the option to expand coverage to those with mental retardation 1972 The Social Security Amendments of 1972 create supplemental security income or cash assistance for the elderly or disabled Under these amendments states must expand Medicaid to cover SSI recipients or expand coverage to those in intermediate care facilities 1974 Medicaid enrollment reaches 20 million people 1985 90 Medicaid expands increasing mandatory eligibility requirements and expanding state coverage options 191
APPENDIX   A MEDICAID TIMELINE 1798   The Marine Hospital Act  1798  became the federal government   s first foray into th...
APPENDIX A MEDICAID TIMELINE 1993 States begin expanding Medicaid under section 1115 waivers 1997 Balanced Budget Act implemented creating the Children s Health Insurance Program increasing welfare spending and cutting Medicare payments to health care providers 1998 Medicaid spending increases about 20 percent between 1996 and 1998 in spite of steady enrollment numbers 2010 Including federal transfer payments Medicaid accounts for 22 percent of state spending 2010 Federally subsidized health benefits expand through Affordable Care Act ACA and the law encourages states to expand Medicaid to all US citizens and legal residents with income up to 138 percent of the poverty line by covering all of the initial costs of expansion 2014 Health insurance marketplaces go live other features of the ACA begin including expansion of Medicaid and prohibiting insurance coverage due to preexisting health conditions 192
APPENDIX  A MEDICAID TIMELINE  1993   States begin expanding Medicaid under section 1115 waivers.  1997   Balanced Budget ...
ACRONYMS AND ABBREVIATIONS ACA AEI AFDC ARRA CBO CHIP CMS DSH FMAP FPL FY GAO GDP HCFA HHS HIFA HSA IGTs NASBO NHE OBRA OECD OMB SSI TANF UPLs Patient Protection and Affordable Care Act American Enterprise Institute Aid to Families with Dependent Children American Recovery and Reinvestment Act Congressional Budget Office Children s Health Insurance Program Centers for Medicare and Medicaid Services disproportionate share hospital federal medical assistance percentage federal poverty level fiscal year US Government Accountability Office gross domestic product Health Care Financing Administration Department of Health and Human Services Health Insurance Flexibility and Accountability health savings account intergovernmental transfers National Association of State Budget Officers national health expenditures Omnibus Budget Reconciliation Agreement Organization for Economic Cooperation and Development Office of Management and Budget Supplemental Security Income Temporary Assistance for Needy Families upper payment limits 193
ACRONYMS AND ABBREVIATIONS ACA  AEI  AFDC  ARRA  CBO  CHIP  CMS  DSH  FMAP  FPL  FY  GAO  GDP  HCFA  HHS  HIFA  HSA  IGTs ...
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ABOUT THE CONTRIBUTORS Joseph Antos is the Wilson H Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute AEI He is also a health adviser to the Congressional Budget Office and he recently completed two terms as a commissioner of the Maryland Health Services Cost Review Commission Before joining AEI Antos was assistant director for health and human resources at the Congressional Budget Office and held senior positions in the US Department of Health and Human Services the Office of Management and Budget and the President s Council of Economic Advisers Charles P Blahous is a senior research fellow at the Mercatus Center at George Mason University and a public trustee for Social Security and Medicare He specializes in domestic economic policy and retirement security with an emphasis on Social Security and employerprovided defined benefit pensions as well as in federal fiscal policy entitlements demographic change and healthcare reform Blahous was named to SmartMoney s Power 30 list in 2005 and has written for the Wall Street Journal Washington Post Financial Times Politico National Review Harvard Journal on Legislation and National Affairs among others Darcy Nikol Bryan MD is a practicing obstetrician gynecologist in Riverside California She is a fellow with the American College of Obstetrics and Gynecology chair of the Maternal Child Department at Riverside Community Hospital and the former president of the Riverside Medical Clinic Foundation She is also an assistant clinical professor at the University of California Riverside Bryan received her medical degree from the Yale School of Medicine and completed her residency at the UCLA Medical Center 195
ABOUT THE CONTRIBUTORS Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American E...
ABOUT THE CONTRIBUTORS James C Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute He studies health care and entitlement reform US fiscal policy and global population aging From 2001 to 2004 he was an associate director at the White House Office of Management and Budget where he was responsible for healthcare Social Security education and welfare programs In addition to his work as a researcher and commentator on public policy Capretta is a health policy and research consultant Jason J Fichtner is a senior research fellow at the Mercatus Center at George Mason University and an adjunct professor at the Georgetown McCourt School of Public Policy the Johns Hopkins School of Advanced International Studies and the Virginia Tech Center for Public Administration and Policy His research focuses on Social Security federal tax and budget policy retirement security and policy proposals to increase saving and investment Fichtner served in several positions at the Social Security Administration including as deputy commissioner of social security acting chief economist and associate commissioner for retirement policy He also served as senior economist with the Joint Economic Committee of the US Congress Robert F Graboyes is a senior research fellow at the Mercatus Center at George Mason University He specializes in the economics of health care and holds teaching positions at George Mason University Virginia Commonwealth University the George Washington University and the University of Virginia Previously he was a sub Saharan Africa economist at Chase Manhattan Bank a regional economist at the Federal Reserve Bank of Richmond and an economics professor at the University of Richmond Twice he was a visiting health care scholar in the Republic of Kazakhstan He has chaired the National Economists Club and the Healthcare Roundtable of the National Association for Business Economics 196
ABOUT THE CONTRIBUTORS  James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow ...
ABOUT THE CONTRIBUTORS Thomas P Miller is a resident fellow at the American Enterprise Institute He served as a member of the National Advisory Council for the Agency for Healthcare Research and Quality from 2007 to 2009 and as a senior health policy adviser for the John McCain presidential campaign in 2008 Miller has been a senior health economist for the Joint Economic Committee of the US Congress director of health policy studies at the Cato Institute and director of economic policy studies at the Competitive Enterprise Institute He is the coauthor of Why ObamaCare Is Wrong for America June O Neill is the Wollman Professor of Economics at Baruch College City University of New York CUNY She is a research associate of the National Bureau of Economic Research and an adjunct scholar of the American Enterprise Institute Between 1995 and 1999 she served as director of the Congressional Budget Office She was elected vice president of the American Economic Association in 1998 Earlier O Neill held senior level appointments at the US Commission on Civil Rights the Urban Institute the President s Council of Economic Advisers and the Brookings Institution Her published articles and books deal with issues related to health social security welfare reform the federal budget tax policy and education finance She was the first chair of the Board of Scientific Counselors of the National Center for Health Statistics She has also advised state and local governments and private industry on labor and welfare issues 197
ABOUT THE CONTRIBUTORS  Thomas P. Miller is a resident fellow at the American Enterprise Institute. He served as a member ...
ABOUT THE CONTRIBUTORS Nina Owcharenko is the director of the Center for Health Policy Studies She oversees the Heritage Foundation s research and policy prescriptions on such issues as healthcare reform at the federal and state levels Medicare and Medicaid and children s health and prescription drugs Her research and analysis have been published in newspapers and periodicals around the country as well as in such noted policy journals as Health Affairs Owcharenko served as legislative director to Sen Jim DeMint R SC when he was a representative and to Rep Sue Myrick R NC She began her Hill career on the staff of the late Sen Jesse Helms R NC 198
ABOUT THE CONTRIBUTORS  Nina Owcharenko is the director of the Center for Health Policy Studies. She oversees the Heritage...
ABOUT THE MERCATUS CENTER AT GEORGE MASON UNIVERSIT Y The Mercatus Center at George Mason University is the world s premier university source for market oriented ideas bridging the gap between academic ideas and real world problems A university based research center Mercatus advances knowledge about how markets work to improve people s lives by training graduate students conducting research and applying economics to offer solutions to society s most pressing problems Our mission is to generate knowledge and understanding of the institutions that affect the freedom to prosper and to find sustainable solutions that overcome the barriers preventing individuals from living free prosperous and peaceful lives Founded in 1980 the Mercatus Center is located on George Mason University s Arlington campus www mercatus org
ABOUT THE MERCATUS CENTER AT GEORGE MASON UNIVERSIT Y The Mercatus Center at George Mason University is the world   s prem...
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